Actionable ideas for the busy trader delivered daily right up front
- Monday lower, high confidence. Bull-bear ratio is 3:5.
- ES pivot 1279.33. Holding under is bearish..
- Rest of week bias lower, but rebound possible by Friday.
- Monthly outlook: bias up, on technicals
- ES Fantasy Trader remains short at 1276.25.
Exactly one week ago I wrote "This should be an interesting week ahead.". And was it ever. After a shaky start we were rewarded handsomely with some awesome gains on Wednesday and Thursday. Then I called for a lower market on Friday and while I was wrong on that, it wasn't by much.
The Dow managed to pull off an anemic 22.5 point gain, the SPX was flat, and the Naz actually did lose a hair. Nevertheless, we remain comfortably inside the rising regression trend channel established on 10/4. So tonight let's consult the Racing Form, look over all the horses and see if we can pick a winner for Monday.
The technicals
The Dow: The Dow's little spinning top doji along with decreased volume and overbought indicators all portend a reversal from last week's close at 12231. This also represents a failure to breach the 12,211 resistance line in a meaningful way and gives every impression of being out of gas, at least for a day or two so it's +1 bears.
The VIX: After a big gap down on Thursday with an inverted hammer, it put in a very unusual bearish engulfing pattern from a low level with oversold indicators on Friday. This looks to me like it's going lower Monday, although it's got its 200 day MA real close at 23.59 as support. So that leaves maybe a point of downside from here. So +1 bulls.
Note that since the start of 2010, the VIX has encountered its 200 day MA from above 9 times. It only bounced off it 2 times, and those were the first two in early 2010. The other 7 times we got this close, it went right through the MA. As a whole I'm inclined to give this one +1 bulls.
VIX futures: After a gap down red candle Thursday, the futures fell again Friday. And while its indicators have now reached oversold levels, they're not giving a reversal sign yet and we're not up to any support levels. It's not out of the question that they could continue lower Monday, so that's +1 bulls.
Market index futures: All three are running in the red at 1:30 AM with ES now down a full percent. After putting in a small doji on Friday, ES was unable to clear resistance at 1282. With indicators that are all not only overbought but look to have peaked, ES is ready to move lower. Its next support is its 200 day MA at 1262.45. We're actually already pretty close to that so that's the key number to watch Monday morning. If ES doesn't bounce off that, it's headed for 1250. All things considered, it's clearly +1 bears.
ES daily pivot: Now 1279.33. ES is now under it at 1268.25 in fairly ugly fashion because not only did the pivot rise but ES has been drifting steadily lower since 9 PM. That's not a good combination, so this is +1 bears
Dollar index: After a huge dump on Thursday, I wrote "such large downward moves in the past tend to be followed by a dead cat bounce the next day" and that's exactly what we got on Friday with a tiny 0.27% gain. But tonight's a lot harder to call. Having hit its lower Bollinger band, it did not bounce off and indeed the lower BB is falling away. And its indicators are all now broken oversold. We still have a bit to go before reaching weekly support, so technically Monday could go either way. I'm not feeling the love, so no points.
Oil: Put in a hanging man on Friday. Its indicators are quite overbought and its stochastic has just executed a bearish crossover. Oil is already running lower in the overnight and being as how its now at the upper end of its recent trading range, I'd have to say its going lower Monday. Since it's now positively correlated with the market, that's +1 bears.
Copper: Finished last week right at a resistance level and its upper Bollinger band. Its daily indicators are now all quite overbought, so this is looking like copper goes lower Monday, and therefore the market in general too, so +1 bears.
Morningstar Market Fair Value Index: No update on Sunday so no points.
History: According to The Stock Traders Almanac, the last day of October is only bullish for the Nasdaq and otherwise has just a slight positive bias. Nothing really worth awarding any points for.
And the winner is...
The bears with a bull-bear ratio of 3:5. This close ratio is typical of reversal points and I tend to believe this one. In addition, J-Trader is holding short for Monday and the sentiment from several other blogs I respect is also negative. So I'm reasonably confident to call Monday lower. That's all she wrote.
ES Fantasy Trader
We went short on Thursday night and decided to hold onto that position on Friday over the weekend. So far that decision seems to be paying off.
Portfolio stats: the account remains $151.625 after 29 trades (21 wins, 8 losses) since inception on 8/18 with $100K.
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