Monday looking lower

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

• Monday lower, medium confidence.
• ES pivot 1333.67.  Breaking under is bearish.
• Rest of week bias lower technically.
• Monthly outlook: bias up.
• ES Fantasy Trader goes short at 1334.00.

Recap

As I suspected Thursday night, we did indeed move higher on Friday.  But I was surprised by the strength and breadth of the advance.  There was in fact much hand wringing and tooth-gnashing in the blogosphere about how and why this market simply refuses to go down.  I don't really care about the why's as much as I do simply about being on the right side.  And which side might that be on Monday?  Read on...

The technicals

The Dow: The Dow went out like gangbusters on Friday, shooting up 157 points to close at levels not seen since May of 2008, although last year's intraday high was a bit above this on May 2nd.  Interestingly, while back then we were very overbought indeed, right now the Dow's daily indicators, though rising, still have not reached those levels yet.  And we remain firmly in the rising RTC going back to December 29th, 2011.

That said, we can consider Friday to have closed right on a resistance line.  Although we have finally cleared the "summer shelf" from 2008 around 11,685, we now have to deal with the spring shelf of 2008 around 13,000.   I think the Dow's in much better shape to mount an assault on this level than it was the last time around, last May.  This chart, in fact doesn't look bad at all.

The VIX:  Perhaps the most telling chart tonight is the VIX, which took quite a gap down on Friday to close at 17.10, a level not seen since last July 22nd, just before the Europe-fueled summer insanity of 2011.  But there are two important things here: first the VIX formed a clear hammer, and second, it did it by piercing the lower BB.  As I've noted before, the VIX rarely goes lower after breaking under the lower BB.  This would seem to suggest a higher VIX on Monday and that would be bad for stocks.

Market index futures: Friday's tall green candle isn't a reversal sign, but the fact that it closed almost two points above the upper BB is.  Moving out to the weekly chart, it appears that the ES indicators have now peaked in overbought territory  Add in the fact that we've got no positive follow-through in the overnight and it's looking like we may be in for a pause.

ES daily pivot: Rose once again from 1321.92 to 1333.67 tonight.  This had the effect of considerably narrowing the distance to the pivot.  Combined with ES opening lower and drifting down from there in the overnight so far, we'll need to watch this level.  If ES breaks under the pivot that's bearish for sure.

Dollar index: Meanwhile, the dollar on Friday remained stuck in what's now a 7 day trading range.  Once again, not much to learn from this chart.

Morningstar Market Fair Value Index: On Friday the index rose again to 0.96 extending a run from 0.83 on December 19th.  While this is still positive for stocks, the approach of the 1.0 level is definitely a caution sign.


History: According to The Stock Traders Almanac,Monday historically has a small bearish bias to it.

     And the winner is...

I'm going to have to say it's the bears.  Although the Dow chart's in pretty good shape, the ES and the VIX are both suggesting a lower close Monday.  That's my story and I'm sticking to it.

In fact we just might see a few days of retrenchment here before the next leg up.  But let's get Monday out of the way first.  We'll see.

ES Fantasy Trader

Last Friday's long trade worked out nicely and I rang the register just before lunch time with a tidy16.5 point gain.  Not too shabby.  Tonight we go short at 1334.00 at 1:47 AM.

Portfolio stats: the account is now $114,500 after 9 trades (7 wins, 2 losses) starting from $100,000 on 1/1.

SLD    10    ES    false    MAR12 Futures     1339.00    USD    GLOBEX    FEB 3 11:40:44

BOT    10    ES    false    MAR12 Futures     1322.50    USD    GLOBEX    FEB 3 01:57:10