Monday likely lower

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

• Monday lower, medium confidence.
• ES pivot 1312.92.  Holding above is bullish..
• Rest of week bias lower technically.
• Monthly outlook: bias up.
• ES Fantasy Trader standing aside..

Recap

Last Thursday night, I called the Dow lower and it rewarded me with a 74 point decline.  Does this mark the start of a new downtrend?  Let's figure it out.

The technicals

Dow daily

The Dow: You can't say the Dow didn't give you enough warning of Friday's decline.  Check out the Dow daily chart here.  After four big up days, last week gave us: a doji, a hanging man, an even bigger hanging man, and a star.  The finally came the drop on Friday.  This red candle finally got the indicators off their overbought levels and they're now tracking back down the chart.  You can also see how well the RTC worked n(the steep set of lines labeled 0.988).  After breaking out the right edge on Wednesday, we got two days of declines.

The VIX:  After putting in a hammer on Thursday, the VIX on Friday did indeed post a gain on Friday, but annoyingly did so on a red candle that looks a lot like a dark cloud cover - a bearish reversal warning.  Indeed, the VIX remains firmly inside a declining RTC going all the way back to last November 25th.  Since that point, we've had no fewer than four different occasions of oversold indicators and yet none of those have managed to foster a VIX rally.  Were currently in the fourth.  Will the VIX climb on Monday, boding ill for stocks?  Right now, it's not looking very likely.  Until I see it break out of this RTC, I'm reluctant to call an extended market decline.

Market index futures: All three futures are down fairly significant;y in the overnight.  ES is off just over half a percent at 1:25 AM EST.  The uptrend that began January 5th is now clearly over.  And because of this extended rally, there's not much support below us.  There's the 1300 psychological level and then a small shelf at 1293.  Either way, there's nothing on this chart to suggest Monday might go higher.

ES daily pivot: Fell from 1318.8 to 1312.92 tonight.  This still leaves us under the pivot, just not as much as before.  After dropping off the open this evening, ES has pretty much been moving sideways.  This sort of action is more bearish than bullish.

Dollar index: The dollar continued its decline going back to January 17th last week.  It's now sitting on its lower BB and also at a fairly good intermediate term support level.  And its indicators are all quite oversold.    Although there's no sign of a reversal on Monday, I do believe the dollar will run higher this week.

Morningstar Market Fair Value Index: On Friday the index posted only its second decline in nine sessions back to 0.93.  That's bearish.


History: According to The Stock Traders Almanac, the last two days of January are actually fairly bullish.

     And the winner is...

It's not 100% clear, but the majority of the evidence this evening seems to point to a lower close on Monday.  With the VIX still reasonably below 20, I'm not looking for a major crash, but I wouldn't be surprised to see one or two more days of downside action before the advance resumes.

ES Fantasy Trader

Tonight I decided to just forget about this long running short trade from last week and covered for a half point gain.  It was just lasting too long and I wanted to start over fresh tomorrow.  Portfolio stats: the account is now $99,500 after 6 trades (4 wins, 2 losses)   Tonight we're just going to stand aside and see where we're at in a day.

BOT    10    ES    false    MAR12 Futures     1305.25    USD    GLOBEX    00:51:36