Actionable ideas for the busy trader delivered daily right up front
- Monday higher, low confidence.
- ES pivot 1397.67. Holding above is bullish.
- Rest of week bias uncertain technically.
- Monthly outlook: bias up.
- ES Fantasy Trader standing aside.
Last Thursday I was looking for some small gains for the Dow on Friday. While the Dow was looking good early on only to end up losing 20 points, the S&P instead did deliver, up 0.11%. Is this a sign the rally is out of gas or is there still more upside to come? Read on...
The technicals
The Dow: Three things about last Friday's action: first the Dow had its first losing day in seven sessions, second it formed an inverted hammer reversal warning, and third, it did it on greatly increased volume/ In fact this was the biggest volume day since last September. Add to this mix some very overbought daily indicators that actually appear to have peaked on Friday, plus a stochastic that just executed a bearish crossover, and you have to wonder if this market may be just about ready to roll over. At least that's what this chart looks like.
The VIX: Meanwhile, the VIX gave us a large doji centered around its recent lows near 14.5. This makes five straight days the VIX has played tag with its lower BB - very unusual. With the VIX now at a multi-year support level, the prudent bet would be that it's going higher before it goes any lower, and that would be a negative for stocks.
Market index futures: All three futures are in the green at 1:15 AM EDT with ES now up 0.2%. Unlike the daily Dow chart, ES looks quite healthy. It remains solidly inside its rising RTC and the green candle being formed now represents good follow-through to Friday's smaller gain. That's really all we've got to go on since the indicators are now all pegged in "overbought broken" mode and therefore unable to predict anything.
ES daily pivot: Tonight the pivot rises once again from 1392.75 to 1397.67. After a gain earlier this evening, ES remains above the new level, though now only by 3 points. Nevertheless, unless ES breaks under the pivot and stays under, this is a good sign for Monday.
Dollar index: Last Thursday I wrote "There's nothing on this chart to suggest anything but a lower dollar Friday". And the dollar was happy to oblige, dropping even more on Friday for a half percent loss in a deep red candle. Even at that, the indicators are still just coming off overbought and the dollar has no immediate support in sight, so I'd say this chart is looking for a lower dollar again on Monday which would be good for stocks.
Morningstar Market Fair Value Index: On Friday the index hit 0.98 for the first time this year, finally breaking above the 0.97 barrier. This is quite a positive development.
History: According to The Stock Traders Almanac, Monday is historically fairly bullish, and the week as a whole is quite bullish with the Dow rising in 6 of the last 8.
And the winner is...
Another difficult choice. On the one hand, the Dow and the VIX both point to a lower Monday, but the dollar and the futures indicate higher. And all four of these are usually good signposts for the market. What I've noticed lately is that when the Dow telegraphs a possible top, it usually takes one day longer to roll over than you'd think. With the futures and dollar being more recent than last Friday's closes of the Dow and VIX, I'm going to have to go with that and opine that we close higher Monday. But being so close to the ES pivot makes me nervous. If we drop below 1397.67, a lower close is much more likely. On the other hand, I'm not seeing much in the way of negative news on the horizon for Monday, so that should help the bull cause. I guess we'll see soon enough.
ES Fantasy Trader
Last Thursday night's long idea played out nicely on Friday, resulting in a decent 3.75 profit, not too shabby on a small range day. Due to the mixed messages I'm getting tonight, I think it's more prudent to simply stand aside than place a possibly low probability bet. I'd rather wait for something with a bit more of an edge. And of course waiting is always just as much of a decision and buying or selling.
So now the account increases to $116,625 after 22 trades (16 wins, 6 losses) starting from $100,000 on 1/1.
SLD 10 ES false JUN12 Futures 1399.00 USD GLOBEX MAR 16 11:17:27
BOT 10 ES false JUN12 Futures 1395.25 USD GLOBEX MAR 16 01:25:57 
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