Ugly week over, more downside to come

Recap

Last night I called the market down today and it sure was, with the Dow ending the day with a dismal 253 point loss following equally dismal jobs news.  Will a bull-bear ratio of 2:13 last night, it wasn't exactly a surprise.

Unfortunately, next week's not looking much better right now.  And I'm increasingly pessimistic about the outlook for September as a whole.  More details on that over the weekend.

Trades

I exited my SDS trade from yesterday's close at 23.90 today for a nice 84 cent profit.  I also covered my now two day long ES Fantasy Trader short at1180.25 for a 22.25 point profit.  I took some heat on this one the first day but patience paid off in the end.

With 10 contracts that comes to $11,125.  Portfolio total now $133,625 after 8 trades (6 wins and 2 losses) since inception.  Here's the trade:

SLD    10    ES    false    SEP11 Futures     1202.50    USD    GLOBEX    AUG 30 19:54:35

BOT    10    ES    false    SEP11 Futures     1180.25    USD    GLOBEX    11:05:33

The next ESFT trade will be Monday evening.

Friday looking lower

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

• Friday looking lower, bull-bear ratio now 2:13
• ES pivot 1210.17 Staying under is bearish; Dow pivot near11,618, SPX pivot near1219.
• Next week bias lower, short term top in.
• Monthly outlook: bias up, all depends on Fed action in September
• ES Fantasy Trader holding short position, now profitable by 5 points.

The technicals

     Recap

Sneezy

Did you ever watch someone trying to sneeze? They go "Ah... ahh..." and you're just waiting and waiting for the "choo" but it doesn't happen? That's what the stock market has been like for the past two days. All the technicals, and I mean just about everything has been pointing to a break lower but it just wasn't happening. Well today Mr. Market finally gave us the "choo" we've been waiting for, with the Dow down 120 points.

The Dow made one last "ahh..." when it popped up at the open, but then quickly gave it all back and fell below the daily pivot.  Remember how I said to watch this today?  It never was able to recover from that.  The "choo" came around 12:30 with a breakdown away from the pivot and it was all downhill from there.

So does Mr. Market just have a tickle in his nose or is he coming down with something more serious?  Let's see how the bulls and bears stack up for Friday.  Each item below scores a point for the respective team.

    The bull case

1. The Dow closed Thursday right at its former resistance (from 8/15) at 11,494.  That now becomes support

2. Today's down volume was lower than yesterday's up volume.

     The bear case

1. The Dow closed at session lows.  The bulls made no attempt to buy the close.

2. There are some more jobs numbers coming out Friday.  They haven't been all that great recently.  It is not unreasonable to think that tomorrow's numbers may be bad too.

Dow daily

3. The Dow put in a bearish engulfing pattern Thursday - never a good sign.

4. The Dow closed outside its latest rising regression trend channel (see chart).  That is a bearish setup.

5. The Dow indicators have now all peaked at overbought levels.  Note in particular the short stochastic (bottom row) and how it just executed a bearish crossover.

6. Historically, the first day of September is up.  That did not happen today.

7. Market futures are guiding lower.  All three (ES, NQ, and YM) are down around a quarter percent at 1:35 AM EDT.  At 1197.75, ES is well under its new daily pivot of 1210.17.

8. The VIX finally closed higher today after putting in three dojis in a row.  Its indicators look to have bottomed in oversold territory.

9. VIX futures rose today, putting in the third green candle in a row.  Higher futures -> higher VIX -> lower stocks.

10. The US dollar continues to strengthen, putting in three green candles in a row of its own.  It is in the middle of its Bollinger bands and not yet overbought.  Higher $ -> lower stocks.

11. Today's sell-off was broad-based, with all S&P sectors going lower.

12. With a long weekend coming up, nobody wants to be left long with the VIX still over 30 and the Europeans PIGS still oinking away.

13. My pal J-Trader (see sidebar) has already gone short and is holding short.

     And the winner is...

Gosh, no contest tonight.  We need a mercy rule!  The bears take it, by a lopsided 13 to 2.  Look for a lower close on Friday.  I think that even if the jobs number come in BTE, any pop from that will fade as the day wears on.  And of course if the numbers are bad, we'll just continue going lower.

ES Fantasy Trader

The ESFT is holding its short position entered two nights ago (back on the first "Ahh...").  Our patience was rewarded and this position has come back from underwater and is now up 5 points.  I expect to close it out before 4 PM Friday.

One other trade: I bought SDS at 23.06 as a hedge just before Thursday's close.

Technical pullback due Thursday; watch pivots for confirmation

The Hoot

• Thursday bias lower, bull-bear ratio now 1:1; pivots will be key.
• ES pivot 1216.25. Going under is bearish; Dow pivot around 11,540, SPX pivot around 1210.
• Rest of week still uncertain, market looking toppy.
• Monthly outlook: bias up, all depends on Fed action in September
• ES Fantasy Trader holding onto underwater short position.

The Technicals

     Recap

Well the Night Owl definitely laid an egg today with my call for a lower close today.  The Dow defied my 2:1 bear to bull advantage from Tuesday night and went up 54 points.  I can only console myself in that from what I read today, I was not the only the one caught by surprise.  Anyway, let's see if we can do better tonight for Thursday.

     The bull case

The market went up today in the face of some compelling reasons not to.  You can chalk this up to end of the month window dressing or maybe someone knows something I don't (not entirely unlikely), but either way, that strengthens the bull case. +1

The double bottom breakout is confirmed today.  This is generally a good bullish sign. +1.  And still no resistance until 11,893.  +1.

Tomorrow is the first day of the month and that is historically bullish.  +1.

     The bear case

 All of the factors in place last night remain today, only more so.  What was overbought then is even more overbought today.  The Dow stochastic, one of my best indicators, is rolling over the top.  This one rarely fails.   +1 for the bears.

The VIX moved lower today but did it with a green candle.  Today makes the second daily doji in a row. +1.

And the VIX futures, now definitely looking oversold, put in a bullish engulfing pattern on a solid green candle, again implying a higher VIX.  +1.

     And the winnder is...

Another tie!  3 to 3.  So the deciding vote has to go to the market futures.  Last night I called the market lower technically in the face of rising futures.  Obviously the overnight players knew something I didn't.  While I still think we're now overdue for a pullback, it's somewhat less clear if it will happen tomorrow.  Once again, like last night, all three market futures are up, but not by much.  ES is up 0.1% at 1:30 AM.

What's different is that unlike last night when ES was in a rising trend in the overnight hours, tonight it peaked around 9:30 PM and actually started declining at 11:40 PM.  At 1218.50 it is now just 2 1/4 points above the new daily pivot of 1216.25.  This number is critical for tomorrow.

Since the market did not behave today the way I was expecting, rather than make a definitive call I'm going to punt and claim that if ES bounces off its pivot (which should be in an hour or so at the rate its going) then we have a shot at some more gains Thursday.

If we fall through it, we may see the reversal I thought was coming today.  Watch that number and watch the Dow daily pivot too.  Today's was 11,540; Thursday's should be close to that.  If the Dow does not bounce off that level and falls below, look for a lower close.

ES Fantasy Trader

The ESFT did not cover its short today which remains more than 10 points underwater (glub glub).  This market simply does not look like a buy to me at these overbought levels so I will just take the heat (easy to do when you're playing with worthless Obamabux rather than real money), stick to my guns, and wait for lower.

Toppy indicators point to lower Wednesday

The Hoot

• Wednesday going lower, bull-bear ratio (below) now 1:2.
• ES pivot 1205.67. Going under is bearish.
• Rest of week uncertain, market looking toppy.
• Monthly outlook: bias up, all depends on Fed action in September
• ES Fantasy Trader going short at 1202.50 at 7:54 PM

The technicals

     Recap

Last night I was "weakly bearish" on today's action and that's indeed what things were looking - until the Fed Minutes came out, that is.  Apparently, hearing what he already knew was enough to send Mr. Dow on a 48 point run up that ended putting the index in the black by 21 points.  Anyway, since I was expecting a slight decline today and that didn't happen, we're at an interesting juncture now, as an alert reader so aptly noted in a comment to my previous post.

So let's do our nightly rundown of the bulls vs. the bears and see who comes out on top.  Remember, I'm now assigning numerical points to each item, sort of like counting cards in blackjack.

     The bull case

The Dow today sure looked like it was ready to roll over but didn't.  I'm willing to give it a plus 1 for that, although I think the only reason was the Fed minutes.  The bears came out to play in the last 15 minutes but they still couldn't turn the day negative.

The Dow still remains solidly inside its current rising regression trend channel.  +1.  It has also now cleared resistance at the 11,480 level.  There's no resistance until 11,890.  Another bull point there.

Then the market futures are all higher tonight at 1:45 AM EDT.  ES is up 0.21%.  I went short ES earlier this evening and right now I'm regretting it.  A bull point there.  ES is also holding above its new daily pivot, 1205.67.  That's another +1.

     The bear case

Today's Dow candle was a classic doji star (SPX too), suggesting indecision and a potential reversal.  I give 1 point to the bears for that.  The Dow indicators are all quite overbought now and at the same level or higher than those from which the last decline started.  A bear point there.

Next we have the VIX.  As I thought, the VIX was unable to move below its recent support and in fact did close higher by at bit, forming a doji of its own in the process, signaling a potential reversal.  Two points for those.  The VIX indicators are all oversold, and at levels from which the VIX has subsequently rallied a day later.  A point for that.

Then today the VIX futures had their first day higher in six sessions and their indicators are also now at oversold levels.  This also suggests the VIX may indeed be ready to go higher.  Higher VIX, lower stocks.  +1 for that.

 Next, oil put in a double bottom recently and broke above the end of the "W" today, suggesting it could break out soon.  That would be bad for stocks.  Another +1.

Finally, last night I suggested that the dollar index might go higher today.   It did indeed and tonight looks like it's not done yet, having bounced off its support, suggesting lower stocks.  Another 1 for the bears.

And the winner is ...

The bears.  It was bulls 4, bears  8 for a bull-bear ratio of 1:2.  With the market looking subjectively toppy to me and still running out of steam, I'd be surprised indeed to see us go higher Wednesday.  I'm just a bit antsy waiting for this shoe to drop and I hate going against what the futures are saying right now, but you can't argue with the technicals.  With the VIX oversold and finally turning positive today, we're due for a reversal.

ES Fantasy Trader

Today's trade was up 2.75 points overnight for a $1375 gain.  Total now $122,500.  7 trades, 5 wins, 2 losses since inception.

Here are the details.  Again, I enter a trade any time after the close and exit it at some point the next day before the close trying to capture overnight price movement.

 SLD    10    ES    false    SEP11 Futures     1207.00    USD    GLOBEX    01:09:30
 BOT    10    ES    false    SEP11 Futures     1204.25    USD    GLOBEX    11:25:07

Tuesday weakly bearish

The Hoot

• Weak bias for Tuesday going lower, bull-bear ratio (below) now 1:1.
• ES pivot 1196.33. Going under is bearish.
• Rest of week uncertain, market looking toppy.
• Monthly outlook: bias up, all depends on Fed action in September
• ES Fantasy Trader going short at 1207.00 at 1:10 AM

The technicals

     Recap

Last night I was pretty sure we were going higher and indeed we did with the Dow advancing a healthy 255 points.  I also thought that increased gold margins would weigh on the metal and GLD did fall 2% today.  I was also right about oil going higher, but wrong that that implied lower stocks.  Tonight we look at the bull and bear cases for Tuesday.  And I'm going to try to make this a bit more quantitative from now on by assigning points to each factor I look at.

Daily Dow

     The bull case

The Dow today completed its double bottom, the one that looked off the table just three days ago, by breaking out above 11,530 (upper horizontal blue line).  With today's close at 11,539, there is no more resistance all the way to  11,896.  Extra points for the fact that the second bottom of the "W" is higher than the first.  Total: +3.

The Dow also remains solidly inside its current rising regression trend channel.  +1.

Then we have the VIX futures (the VIX itself is in the Bear Case below).  They gapped down big today without hitting any support level suggesting that there is room for the VIX to run lower on Tuesday.  +1 for that.

     The bear case

Exhibit A for the bears has to be the VIX.  Here's the daily chart.  Notice how we have fallen back to a strong support level at  32.27 (blue horizontal line).  The last time we were here, on 8/17, the VIX rocketed higher the next day.  Also note how we are on the right edge of a descending regression trend channel, just as we were on 8/17.  Even the indicators are at the same oversold levels.  This all suggests the VIX going higher in a day or two at the most.  Total: 2 points.

Daily VIX

Also, today's advancing volume in the Dow was significantly lower than Friday's.  One for that.

Not much to add to this from the market futures tonight at 1:10 AM.  ES, NQ, and YM are all essentially flat.  ES indicators are all at oversold levels though, with the stochastic (which is the best of the bunch) at the same level the last two big drops came from.  1 for that.

Finally, the dollar index put in a hammer at the bottom of its recent range suggesting it may go higher tomorrow.  That would be bad for stocks. Another 1.

And the winner is ...

It's a tie! It was bulls 5, bears  5 for a bull-bear ratio of 1:1.  I'm going to call this weakly bearish though, simply because the recent advance looks to me to be running out of steam.  I would not be surprised to see the market teeter on the edge tomorrow before going lower on Wednesday instead.  Either way, I'm not looking for any big gains Tuesday like we saw today but tonight is still a tough call.

Ticker Sense

The latest Ticker Sense blogger sentiment poll (see sidebar) came out today and not unexpectedly, the prevailing sentiment has swung bullish by 43% to 29%.  My guess is that this is due to whatever it was that Bernanke said last Friday.  People are counting on the September Fed meeting to pump up the markets, if not the economy.  I think the SPX will be pretty much marking time until then, possibly drifting slowly higher into that.

ES Fantasy Trader

Today's trade was up 10.25 points overnight for a $5125 gain.  Total now $121,125.  6 trades, 4 wins, 2 losses since inception.

Here are the details.  Again, I enter a trade any time after the close and exit it at some point the next day before the close trying to capture overnight price movement.

BOT    10    ES    false    SEP11 Futures     1187.25    USD    GLOBEX    00:41:05

SLD    10    ES    false    SEP11 Futures     1197.50    USD    GLOBEX    11:46:29

Monday going higher

The Hoot

Remember, if you just want my forecast for the next trading day, you can get it right here, right up front with the Daily Hoot.  Read on though for the reasoning and my take on the markets.

• Monday going higher, see bull & bear case below.
• Rest of the week uncertain due to approaching resistance levels.
• Monthly outlook more promising due to likelihood of Fed action in September.

The Night Owl  went long ES at 1187.25 for the Fantasy Trader account tonight.

The technicals

Being Sunday night I'm looking at the weekly charts of the Dow, the SPX, the SPY and TNA, which gives me a pretty good market cross-section.  And I'm seeing pretty much the same thing all the way around.  Let's check the wild animals and see how they stack up.

     The bull case

All of the weekly indicators are oversold with the stochastic is executing a bullish crossover.  The Dow and SPX are oh so close to having formed a bullish engulfing pattern over the last two days.  In addition, the Dow's up volume last week was higher than the down volume the week before.  And despite three days of essentially sideways action, the Dow remains inside a rising regression trend channel from a week ago.  Those are all bullish signs.

And correspondingly, the daily VIX executed a classic dark cloud cover on Friday, indicating it wants to go lower.  The weekly VIX chart shows highly oversold indicators that have peaked and are going lower.  VIX futures continue lower too.  This all points to a lower VIX, ergo higher stocks.

Next, and this is a big one, all three market futures are up at 12:35 AM EDT.  ES is up nearly a full percent at 1187.75 and has no meaningful resistance until 1200.

And finally, we can pretty much forget about Hurricane Irene, which at least as far as Wall St. goes proved to be the Comet Kohutek of natural disasters.  Overhyped and underforecasted, the surf whipped up by Irene couldn't hold a candle to the frenzy whipped up by the mass media.

     The bear case

The US dollar index took a big dive on Friday down to near its monthly support level.  Though it still has a bit of room to go lower tomorrow, I think it's going to be due for a reversal soon.  Higher dollar implies lower stocks.

Meanwhile, oil seems to have bounced off the bottom of its recent trading range last Thursday.  Friday it went higher and looks like it's got room to run Monday.  Higher oil lately implies lower stocks.

The gold chart looks quite similar to oil. However, I note that my broker on Friday announced that they were going to be raising margins on gold again.  This may put a damper on the metal, at least in the short run.  So this is kind of a toss-up.  The chart suggests gold going higher.  But the influence of higher margins should kick in soon.

     And the winner is ..

The bulls.  Their case is clearly more convincing for Monday.

So Sell in September?

September's got a bad rap in the market.  Check out a quote that appeared in this article on marketwatch.com today:

"September has been the worst-performing month of the year for the Dow and the S&P 500 since 1950, according to the Stock Trader’s Almanac."

What they failed to mention was that if you look at the last 10 years, the Dow has been down just 5 times and actually up the other 5.  Three of the down years included the 2001-2003 recession.  One (real big one) came in 2008 during a truly exceptional time.  Then I got to thinking, what about years where August was down big time?  The last time that happened in the Dow was 1997 and 1998.  In both those years, September was up.  Going back to 1987, only one time was a bad August followed by a bad September, 1990.  And that September wasn't nearly as bad as the August drop.

The End of the World Redux

Sorry to keep harping on this but is it just me or am I seeing more and more apocalyptic chatter on the web these days? I know I've done my part by posting my War With China piece, but some of these are really getting out there. Check out just one example, this from Expected Returns:

"This is a crisis in confidence, so things will get very volatile. Everything will occur in an accelerated timeline, including the rise of a third party in America (finally). Gold is going to explode with stocks. Civil unrest will appear, perhaps leading into 2012. We are very close to approaching the tipping point where confidence just falls off a cliff. This is just the warm up. People still don’t believe how bad things can get."

As Count Floyd used to say on SCTV, "Scary stuff, eh kids?" Personally, I believe that 2012 is going to be a letdown but let's see what happens tomorrow first.