Friday lower

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

• Friday lower, high confidence
• ES pivot 1163.00.  Holding under is bearish.
• Next week bias uncertain, oversold rally is overdue..
• Monthly outlook: bias down, on politics.
• ES Fantasy Trader stuck long..

 Happy Thanksgiving!

The Night Owl wishes all my readers a happy Thanksgiving.  And despite all the terrible things happening today in our markets, our country and around the world, we still have a lot to be thankful for in America.

Tonight is going to be an abbreviated holiday edition of the Night Owl Trader mostly because everyone is no doubt either watching TV and digesting turkey, or out battling the Black Friday mobs.  For me, I'm just going to take it easy tomorrow.

Although the market will be open for half a day, there will be little to learn from the action regardless of which way it goes.  All the big players are taking the day off and I firmly believe we should emulate them.

Recap

Tuesday night we were right at a support level but I called Wednesday lower anyway and that's unfortunately what came about with the Dow diving another 236 points.  My screens were literally awash in red.  It was real ugly.

The technicals

The Dow: Closed for Thanksgiving.  That's one way to get a day where the Dow doesn't go down - we can be thankful for that.  Will this one day timeout give the bulls a chance to regroup and drive the market up in Friday's short session as is historically the case?  Let's check the futures for some clues.

Market index futures: Well stocks were closed but the futures soldiered on today, putting in a small doji in the abbreviated Thanksgiving session.  Any hope that might signal a reversal though was dashed when trading resumed this evening and ES promptly resumed its march lower.  This time, apparently Germany was the culprit.  Um, how many countries are there in Europe?  I don't think we're going to see an end to this until they're all had a whack at the stock market.

Anyway, all signs now point to continued lower on Friday.  ES, now at 1153.50 at 1:15 AM EDT has no support til 1122.  The indicators are all lying broken on the floor.  RSI has now hit zero for the second day in a row after 10 straight down days.  And there are still no reversal signs in the candles.  We remain firmly entranced in the descending RTC.  I'm saying we're going lower tomorrow but I'm not even going to bother with it.  I need a break.

Wednesday looking lower on politics

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

• Wednesday lower, medium confidence.
• ES pivot 1187.00.  Holding below is bearish.
• Rest of week bias lower, on US & EU politics.
• Monthly outlook: bias uncertain on politics.
• ES Fantasy Trader remains stuck long.

Recap

Another miserable day on the Street today.  It looked for a while like the ECB might come to my rescue and make the day finish higher as I was calling for but that rally attempt fizzled right after lunch and back down we went for another 54 points lower in the Dow.

The technicals

The Dow: Today's drop took us to quite oversold levels and made two days we're bumping along the lower BB.  The last two times that happened lately, we rallied the next day.  Unfortunately, the time before that was the giant summer swoon from July through August, when the Dow spent a full eleven sessions hugging a lower Bollinger band that kept falling away from the market.  Let's hope this isn't turning into that.  And uh oh, I used the "h" word, something I normally avoid.  When you start pinning your strategy on hope, you're in trouble.  And this market sure looks like it's in trouble right now.

Of course part of the problem is the thin trading due to the holiday week. Volume has been declining for the last three sessions as all the "banksters" pack up and head for the Hamptons to gobble their turkeys.

The VIX: One thing I did get right last night was to call for a lower VIX and sure enough, it went down 2.86% today.  Given the leading indicator qualities of the VIX, this is about the one bright spot I can find in the charts as a lower VIX should mean higher stocks.

ES daily

Market index futures: This is the Chart of the Day, and a thing of beauty it is not.  Nothing but down for almost eight straight sessions now (the 15th saw a puny 2.5 point gain, so that might as well be down).  At this point, it's time to start talking about streaks again.  This down streak is now longer than anything from the waterfall crash back in July and the market is as oversold now as it was after that.  And yet this chart is looking like the market that has fallen and can't get up.  The candles are locked into that descending RTC like a train on rails.

The only good thing here is that 1169 is another support level and that seems to have held in the overnight, so far at least (at 2 AM EDT).  But with all three futures down about a full percent, Wednesday's not looking good.

ES daily pivot: Now 1187.00 but even as the pivot comes down, ES seems to just fall away from it.  We're not going to catch a reversal this way.  Ugh.

     And the winner is...

Europe.  Not the bulls, not the bears, it's all about Europe and the Pain in Spain, which causes no one's gain.  Until we get a hint of good news out of Europe, you can just fuggedabout it.  Technically, we're overdue for a bounce any day now, but it simply doesn't seem to want to happen.

I'm not going to the Hamptons, but I am completely sick and tired of this nonsense.  I'm taking the rest of the week off.  The only good thing here is that eventually, there may be some bargains around but I'll leave the falling knife to the turkey, thank you very much.

ES Fantasy Trader

The ESFT is now underwater in the same way as the Trieste exploring the Marianas Trench.  I can only assume that eventually it will have to come up for air.  In the meantime, well, I'm on vacation.
 

Tuesday higher

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

• Tuesday higher, medium confidence. Bull-bear ratio is 4:0.
• ES pivot 1193.42.  Holding above is bullish.
• Rest of week bias uncertain, on US & EU politics.
• Monthly outlook: bias uncertain on politics.
• ES Fantasy Trader remains long.

Recap

I had a bad feeling about today despite a majority of last night's indicators looking bullish.  Turns out my instincts were correct as the Dow handed us a nasty 249 point dump amid continuing uncertainty in Europe and the comedic antics of our very own Twelve Stooges in Washington.  And you super-committee-ians are earning a paycheck for what exactly?  Where is Donald Trump when you need him to tell you you're all fired?

But before I tell you how I really feel, let's look at the charts to see where Tuesday might lead.  Tonight we again concentrate on just the Big 4.  And I am deliberately excluding the commodities and historical effects I normally consider because of their erratic behavior lately.  I find this helps cut down on the noise when the VIX is at elevated levels. 

The technicals

The Dow: As I suspected, the Dow chart last night was looking a bit queasy.  And so today it barfed up a gob of points to take us right to the lower BB.  The last two times a big drop took us to that level, we rallied the next day.  A stochastic finally making a bullish crossover tends to support that view, so +1 bulls.

The VIX: Put in an unusual dark cloud cover on a gap-up red candle today.  So while the VIX did gain 2.8% today, it was almost all right out the gate with the rest of the day retracing.  I know I called for a lower VIX today and didn't get it but tonight the case is much stronger for lower tomorrow, so +1 bulls

Market index futures: Unlike last night, right now all three are actually in the green by non-trivial amounts, with ES up 0.44% at 1:15 AM EST.  There's support at 1191 and the indicators are all now quite oversold.  The stochastic has completed a bullish crossover and OBV has bottomed.  Having now hit the lower BB, I think we're due for a bounce from here, so +1 bulls.

ES daily pivot: Now 1193.42.  We've finally moved above the pivot, or more to the point, the pivot has moved below the current price of 1195.50.  The pivot is now support, so unless we cross back under, it's looking good for Tuesday.  +1 bulls.

     And the winner is...

It's all bulls, 4:0.  I'm not ready to call it a trend, but I think we're due for an oversold bounce on Tuesday.  That's it in a nutshell.


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.  

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

The Night Owl now has email.   If you prefer to contact me directly by email instead of leaving a comment on the blog, just send to nightowltrader (at) gmail.com.   I'll be checking that regularly.

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.