More downside likely Monday

The Hoot 
Actionable ideas for the busy trader delivered daily right up front

• Monday lower, medium confidence. Bull-bear ratio is 4:2.
• ES pivot 1217.50.  Holding under is bearish.
• Rest of week bias uncertain, on US & EU politics.
• Monthly outlook: bias uncertain on politics.
• ES Fantasy Trader remains long.

Night Owl News

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Recap

My call for Friday was correct, with the Dow gaining 25.4 points.  OK so the SPX lost all of half a point, but that's really basically unchanged.  And I don't usually follow the Nasdaq which dropped 0.6%  In any event that sort of decorrelation was sort of to be expected for an expiration day.  In any event, Mr. Market remains totally fixated on Europe.  The latest news is that the Spaniards seem to have given the Socialists the boot.  Let's see if that will give us a boost on Monday.

The technicals

The Dow: Last week's dismal performance took us right back down to recent daily support.   The fact that the bears were unable to push the market below the 11,750 level is encouraging.  On the other hand, the weekly chart isn't looking nearly as good.  All of the indicators have now peaked at overbought levels and are headed down, with the stochastic just finishing  a bearish crossover.  Indeed, the notable factor here is the Dow's continued inability to push much over 12,170 going back four weeks now.

And if that wasn't bad enough, the Dow fell out of its weekly rising regression trend channel.  Note also that the two previous weeks formed a hanging man candle and then this past week, boom - down we went.  I'll say it again, one hanging man, bad; two hanging men, double bad.

But on a daily basis at least, Friday's inverted hammer is a reversal indicator, so +1 bulls.

The VIX: After touching its upper BB on Thursday with a bearish shooting star, the VIX did indeed decline on Friday as I predicted.  The second inverted hammer it formed signals continued downward pressure and the stochastic is executing a bearish crossover.  This points to a lower VIX Monday, so +1 bulls.


VIX futures: This chart is not as clear as the VIX itself.  I see at least a possibility of lower futures Monday but I'm not confident enough to award any points here.

Market index futures: Are all in the red once again at 1 AM EST.  ES is doing the worst, down about three quarters of a percent.  Worse, they gapped down this evening to open under support at 1213.  Next support, psychological at 1200, then technical at 1193.  On the plus side, we've now hit the lower BB and the stochastic is more oversold than it's been since July.  On the minus side, that doesn't guarantee a reversal Monday.  And the depth of the overnight drop makes me pessimistic here, so +1 bears.

ES daily pivot: Now 1217.50.  We're quite below this now at 1203.50.  ES is going to have a tough job breaking through this pivot, so +1 bears.

Dollar index: Put in a big hanging man on Friday that did not manage to advance beyond Thursday's high.  That looks toppish to me.  RSI has peaked at overbought levels and the stochastic is making a bearish crossover.  Absent any new unexpected jerking around by Europe tomorrow, the dollar should go lower and that makes it +1 bulls.

Oil: Following a bearish engulfing pattern Thursday, on Friday oil fell out of its rising RTC from October 4th, stopped only by its 200 day MA at 97.15.  I think oil may have topped here and has plenty of room to run lower Monday.  Unfortunately, oil has lost its market correlation, so no points.

Copper: Hit its lower BB on Friday along with very oversold indicators.  Unfortunately, copper has displayed the ability to slide down the lower BB rather than bounce off it this year, so I'd be cautious about this being a reversal indicator.  I want some confirmation.  If Monday is up, then I think Tuesday will be also.  But no points for now.

Morningstar Market Fair Value Index: Last Friday the index was unchanged at 0.86, so no points here.

History: According to The Stock Traders Almanac,the Thanksgiving holiday week is historically positive and improves as the week goes on, so +1 bulls.

     And the winner is...

The bulls, with a bull-bear ratio of 4:2.  However, with continuing disruptions in Europe and with a looming deadline for the 12 Stooges on our super-committee of fools more interested in playing politics than helping the country here at home, I'm going to exercise my veto over the B-B numbers and call Monday lower.

ES Fantasy Trader
Last Friday I said that sometimes you just have to take the heat.  This trade is starting to get pretty hot though.  Ouch.  Portfolio stats: the account still remains $173,500 after 35 trades (26 wins, 9 losses) since inception on 8/18 with $100K.