Monday looking higher

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

• Monday higher, medium confidence.
• ES pivot 1340.83.  Holding above is bullish..
• Rest of week bias uncertain technically.
• Monthly outlook: bias up.
• ES Fantasy Trader goes long at 1347.50.

Recap

Last Thursday night was one of rare times when I was getting really clear signals on all fronts that we'd be going lower on Friday and that's just what happened with the Dow dropping 89 points.  What was interesting though was that we rallied nearly 60 points from the low of the day and closed strong, despite continued uncertainty over Greece. So now what?  Let's take a look.

The technicals

The Dow: The two major points of interest on the Dow daily chart are 1. we fell out of the rising RTC, a bearish setup (but not a trigger yet) and 2. the indicators have all topped at overbought levels, always a bearish sign.

The VIX:  The VIX futures on Thursday night accurately predicted Friday's 11.6% gain in the VIX.  Not just a gain but a big gap up.  But the candle is interesting.  First, it touched the upper BB and then retreated.  As I've noted before, the VIX rarely spends more than a day or two around the upper BB before reversing.  It also formed two thirds of an evening star pattern.  And third, its indicators are now higher than levels from which reversals occurred the last four times we were here.  These are all arguments in favor of a lower VIX on Monday which would be good for stocks.

Oh yes, and on Friday the futures put in a shooting star, also a bearish reversal pattern.

Market index futures: Tonight the futures are all up significantly, with ES, NQ, and YM trading up 0.455, 0.47%, and 0.42% respectively at 1:15 AM EST, no doubt on the successful austerity vote in Greece this evening.  While ES on Friday put in its biggest red candle of the year taking us out of the rising RTC from February 1st, the lack of follow-through in the overnight makes me cautious about calling for more short-term downside.  Indeed the stochastic looks almost ready to make a bullish crossover from a high level.  We've seen this sort of thing a few times already this year.  In each case, the next day didn't produce big gains, but it didn't go lower either.

ES daily pivot: After rising for eight straight sessions, the ES pivot fell from 1347.25 to 1340.83 tonight.  ES opened exactly up to the former pivot this evening.  With it holding right around that level so far, that now puts us above the new pivot by about 6 points.  Continuing to hold above will be positive for stocks on Monday.

Dollar index: The dollar continues to be driven by the euro which rose over half a percent following the Greek vote Sunday night.  Higher euro -> lower dollar -> higher stocks.

Morningstar Market Fair Value Index: No update from Morningstar.

History: The Stock Traders Almanac points out that while Monday is historically bullish, the Dow has been down on this day 5 of the last 7.

     And the winner is...

I'm playing a hunch here.  Logic would dictate that Friday's downward move was the beginning of a pullback, and Lord only knows everybody's been waiting for one for some time now.  But the political and technical developments over the weekend make me think that maybe what we saw Friday was the pullback.  At least for now.  There may be more downside to come later this week, but for Monday anyway, I'm going to say we go higher.

ES Fantasy Trader

Last Friday's short turned a profit of 7.5 points.  I decided not to hold that one over the weekend against the possibility of good news out of Greece, and now I'm glad I dumped it.  Tonight we go long at 1347.50.   Portfolio stats: the account increases to $112,125 after 12 trades (9 wins, 3 losses) starting from $100,000 on 1/1.

BOT    10    ES    false    MAR12 Futures     1337.75    USD    GLOBEX    FEB 10 11:44:17   

SLD    10    ES    false    MAR12 Futures     1345.25    USD    GLOBEX    FEB 9 20:19:11