Monday looking lower

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

• Monday lower.
• ES pivot 1370.08.  Holding under is bearish..
• Rest of week bias mixed technically.
• Monthly outlook: bias up.
• ES Fantasy Trader goes short at 1367.50..

 Quote of the Day

"Personally, I think that it is just naturally human to like to see that you have wealth, and more wealth feels better than less."

- David Van Knapp, Seeking Alpha

Recap

Last Thursday night, I got spooked by a sudden downward blip in ES that seemed to run counter to otherwise positive looking charts.  Nevertheless, the pivot held and the market finished  a bit higher with the Dow gaining 14 points.  With a triple witching and a Fed meeting coming, this should be another interesting week.  Let's try and figure out where it might take us.

The technicals

The Dow: On Friday the Dow finished retracing its big dump from last Tuesday but then closed off its high to give us a classic shooting star.  This is a reversal warning, albeit not a highly accurate one.  With indicators just coming off oversold and a stochastic just finishing a bullish crossover, we'd definitely want to wait for confirmation before calling this a reversal.

The VIX: Meanwhile, the VIX formed a nice gap-down doji with a 4.68% loss that took it right to its recent support at 16.70 before closing a bit higher.  While this doji also warns of a possible reversal, we note that the lower BB is at 16.02, leaving about a point of possible further downside.  Though the VIX could turn right here, the indicators, still headed lower, suggest the possibility of one more day of downside, which would be good for stocks.

Market index futures: At 1:30 AM EDT, all three futures are lower with ES leading the way down, off 0.36%.  The failure of any follow-through to the excellent three day run last week is concerning.  The overnight candle so far is looking like a dark cloud cover.

ES daily pivot: Tonight the pivot rises from 1361.83 to 1370.08.   This jump, coupled with a sagging ES puts us below the pivot, though only by a few points for now.  Still this is a worrisome sign.

Dollar index: The dollar had a big gain Friday taking it nearly to its upper BB.  Though this tall green candle does not suggest a reversal, the bearish crossover in the stochastic does.  The dollar looks to have more downside potential than up right now.  The euro, meanwhile is in a support band around 1.30-1.31.  The last three downtrends in the euro have stopped here.  This also suggest a lower dollar is possible Monday.

Morningstar Market Fair Value Index: On Friday the index rose right back to 0.96 where it has stalled so far this year.  The continuing inability of the index to go above this level weakens the bull case.


History: According to The Stock Traders Almanac, Monday has a slight historical bullish bias.

     And the winner is...

Tonight I'm going to go with the Dow shooting star and the steadily declining overnight ES and vote with the bears.  The market just has a tired feel to it right now, as though it's all worn out from that slow grind back from last Tuesday's big fall.  I note also that J-Trader is going short.  So unless we can break above the ES pivot by mid-morning, I say we close lower on Monday.

ES Fantasy Trader

After skipping a trade on Friday, tonight we go short at 1367.50.

So far the account remains at $114,750 after 19 trades (14 wins, 5 losses) starting from $100,000 on 1/1.