Monday looking lower

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

• Monday lower, medium confidence.
• ES pivot 1364.42.  Holding below is bearish.
• Rest of week bias lower technically.
• Monthly outlook: bias up.
• ES Fantasy Trader goes short at 1361.25.

Recap

I was having trouble picking a direction for Friday last Thursday night.  I reluctantly came down on the bullish side.  That was looking good around lunch time but by the close, all our gains evaporated.  Is this finally the sign of the long-awaited pullback?  Tonight we call out the nominees and try to select the winner.

The technicals

The Dow: Friday's 1.74 loss gave us a perfectly balanced doji.  But we've seen this movie many times already this year.  Without confirmation, we cannot strictly call this a reversal indicator.  The stochastic is now flatter than a pancake, suggesting more sideways action rather than a reversal.  Another attack on 13,000 isn't out of the question, but the longer we sit just under that, the more likely the next move is lower rather than higher.

The VIX:  The VIX put in its first green candle in six straight sessions on Friday, rising 3% to give us something approaching a bullish piercing pattern.  And having very nearly touched its lower BB, it looks to me ready to go higher on Monday, which would be bad for stocks.

Market index futures: On Friday, ES put in a true doji for the first time this year.  But again, because of the general rising trend, we really need some confirmation that this is a reversal indicator before calling a top. That said, at 1:25 AM EST all three futures are lower, with ES down 0.17%.  It's obviously still early, but as far as it goes, this is preliminary confirmation of the doji.

ES daily pivot: Tonight the pivot moves from 1359.00 to 1364.42.  Coupled with a slow downward drift in ES, we are now three points under the new value, not a good sign.

Dollar index: The dollar took a big gap down on Friday, breaking through its lower BB to form a stocky hammer.  This doesn't mean it can't go lower still on Monday, but the risk/reward at this level suggests it's more likely to be rising again in the next day or two.

Morningstar Market Fair Value Index: The index has now been stuck at 0.96 for six straight days.  The l;ast time we saw a longter stretch was the period form 12/6 to 12/22 in 2010.  After that... not much happened.  The VIX rose, but the market didn't fall.  I gather from this that we're in some sort of market doldrums, where the trade winds have subsided.  There's not much energy to push us in either direction right now.

Supporting this idea is the SPX Hi-Low index which has been stuck on 100 for 10 days now.  This sort of action makes me think that the next move is down, but where's the impulse to set this snowball tumbling down the hill?

History: According to The Stock Traders Almanac, the rest of the month is historically mildly bearish.

     And the winner is...

Tonight I'm looking at the last doji (OK, it was really a very narrow star) we saw in the Dow on February 9th.  The next day was down.  Given that, plus some other assorted warning signs on the charts, I'm going to hazard a wild guess that Monday's going lower.  I'm not ready to call it the start of a pullback, but it just feels like where we're going.

ES Fantasy Trader

Putting my money where my beak is, tonight we go short at 1361.25.  If this play doesn't work out on Monday, then I expect it will on Tuesday.

The account remains $113,250 after 15 trades (12 wins, 3 losses) starting from $100,000 on 1/1.