Friday lower unless good EU news

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

• Friday lower unless good EU news.
• ES pivot 1246.25.  Holding under is bearish.
• Next week bias lower, on technicals.
• Monthly outlook: bias up, on technicals.
• ES Fantasy Trader going short at 1233.00.

Recap

So the Europeans disagree amongst each other.  Whoa - big surprise there, eh?  Nevertheless, that was all it took to drive the Dow down nearly 200 points today.  The only good thing I can say about today's action is that it got the charts off of being stuck on top dead center.  Finally the market threw us a freakin' technical bone to chew on.  So without further ado, let's get chompin'.  Yum!

The technicals

The Dow: Looking at it purely technically, today's big red candle was a giant bearish engulfing pattern, one that gobbled up an entire week's worth of gains.  It also served to knock all the indicators out of their overbought-broken torpor and begin the trip back to oversold.  We also fell out of the rising RTC back to 11/28 and that is a bearish trigger.

The only good things here are that the 12K support level basically held ( I count a close within two points as holding) and the 200 day MA was never seriously threatened.  But on the face of it, this still remains an ugly looking chart.  And now that the Europeans have clearly signaled that they are more interested in theatrics than the good of the global economy, the stage is set for further declines on Friday.

The VIX: The VIX, predictably, took a 6.7% jump today.  True to form, after visiting the lower BB last week, that was all it took to begin the march upwards, even before the latest drama from the EU.  The VIX has now completely retraced the big gap down it took last week and is smack in the Twilight Zone - halfway between BB's.  It's indicators are also still looking more oversold than overbought suggesting still more room to run higher on Friday.

VIX futures: Gapped up today - little here to suggest any reversal Friday.  Also still more oversold than overbought.

Market index futures: On a purely technical basis, today's tall red candle skewered the 200 day MA and completed a bearish RTC trigger, just like the Dow did.  With indicators now definitely off overbought peaks, this all looks pretty bad for the market.

You can see just how much Europe is influencing the market by looking at the 5 minute ES chart from about 3 PM through the evening.  It's been getting jerked around every which way as various rumors, twitters, innuendos, and new flashes popped up.  ES has crossed its 4 PM closing value no fewer than 6 times til now (1:05 AM EST).

Currently, all three futures are in the red; ES is down 0.15%.  That alone does not bode well for Friday.  Assuming we do go lower, one likely support point would be the 50% retracement of last Wednesday's big spike, that would be at 1222, which coincidentally (or maybe not) has been a good S/R line back to last summer.

ES daily pivot: Is little changed tonight, now at 1246.25.  Unfortunately, we were below the pivot all day and we're still below it.  Not good.

Copper: Took a big hit today.  This daily chart definitely looks like it's going lower, with all that implies for the broader market.

Morningstar Market Fair Value Index: Yesterday, the index remained at 0.89.  There is no update on the site for today's index.  I suspect it will move lower.  But it has moved little in six straight days.  This suggests the absence of any strong negative pressure on stocks.

History: According to The Stock Traders Almanac, Friday is not a particularly bullish day, so we've got no help from history here.

     And the winner is...

All things considered, technically it looks like the bears take it.  There appears to be about 11 ES points of downside available without too much trouble.  Once again though, it all hinges on Europe.  But if the can-kicking contest we saw today is any indication of what will happen over there tomorrow, then I'm not too optimistic.  So I have to say Friday's going lower.

ES Fantasy Trader

Today we just stood on the sidelines and watched.  Nothing ventured, nothing lost.  Portfolio stats: the account remains at $156,875 after 40trades (28 wins, 12 losses) since inception on 8/18 with $100K. Reminder: the portfolio will reset to $100K cash on January 1st, to make year-over-year comparisons easier. Tonight we go short at 1233.00 in anticipation of more thumb-twiddling and violin fiddling on Friday from Europe while their economy burns.