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- Monday lower, low confidence.
- ES pivot 1370.25. Holding below is bearish.
- Rest of week bias higher technically.
- Monthly outlook: bias up.
- ES Fantasy Trader standing aside.
Now I know why last Thursday I couldn't decide on a market direction for Friday - the market couldn't either, with all three major averages finishing within a few points of unchanged. This now makes six straight sessions the Dow has traded in a narrow range of 12,950-13,000.
The technicals
The Dow: On Friday, the Dow created a Christian doji, but really the candlesticks haven't been of much use to us all year so far. The Dow continues its lazy stairstep advance. And although Friday finished essentially unchanged, the stochastic has now declined to the same area from which we've seen the next step up all year long. The daily upper BB is now at 13,043, suggesting we might manage another 50 points higher without too much trouble, assuming we can cross the 13K Rubicon and stay on the other side.
The VIX: The VIX actually gained 0.17% on Friday, but this number is deceptive, since it did it on a solid red candle. While this creates some level of support around 17.25, the VIX remains solidly in a five day descending RTC. Its stochastic also formed a bearish crossover Friday suggesting lower to come, and that would be good for stocks.
Market index futures: At 12:55 AM EST all three futures are running lower, with ES down a non-trivial 0.31%. The current level of 1364.50 puts us right on the edge of the rising RTC. Trading under this on Monday would be a bearish setup. And on the hourly chart we see that ES is continuing in a downtrend that began at 7 PM on March 1st, almost a week ago.
ES daily pivot: Tonight the pivot moved a bit from 1369.50 to 1370.25. And with ES continuing lower in the overnight, we're now six points under the new number. That does not bode well for Monday.
Dollar index: On Friday the dollar took a big gap up to close a substantial 0.8% higher. Although still short of its upper BB, this gap is looking to me like its just begging to be filled. With indicators not quite overbought yet, another day of gains isn't out of the question,, but I'd say the dollar is going to be headed lower by mid-week at the latest, also good for stocks. This is particularly so in view of the fact that the euro looks ready to rise.
Morningstar Market Fair Value Index: Last Thursday, MS was advertising this number at 0.92. Now, they're saying it was 0.97. Unless we can get some reliable data from these guys, I'm going to have to drop this as a daily indicator.
History: According to The Stock Traders Almanac, Monday is historically bullish.
And the winner is...
Yet another night of conflicting signals. While some of the charts don't look too bad at the moment, I'm concerned about ES, which is not just down, but trending lower. I'm also concerned about the recent reversal in the price of oil. While sky-high oil prices are clearly not good for our economy, I note that the last few times when oil has suddenly turned lower, the market also did, either simultaneously or soon after.
However, given the continuing upward momentum so far this year, I still hesitate to call a reversal until I see some confirmation. And I still don't see that. So until then, the best I can do is call for some more range-bound trading, with the Dow bouncing around between 12,950 and 13,000. Right now, I see no compelling indications that we're breaking out either higher or lower.
If I absolutely had to make a wild guess right now, I'd say that Monday might close lower, but I don't have a lot of confidence in that. If ES can break 1366.50 Monday morning, that increases the odds of a higher close. That would take ES out of the descending hourly RTC. But if ES can't recapture the pivot before noon, the odds for a lower close increase greatly.
Watch those two key ES numbers: 1366.50 and 1370.25. That's about the best I can do from my late-nite perch this time.
ES Fantasy Trader
Faced with another night of uncertainty and no discernible edge, we stand aside once again.
The account remains at $101,500 after 17 trades (12 wins, 5 losses) starting from $100,000 on 1/1.
Posts
Michele,
ReplyDeleteDoes the Russell 2000 small cap index factor into your analysis? It has been tracking sideways since the beginning of Feb and is just now dropping down below 810. RSI also broke down below the 50 mark.
Best!
Hi Silverbear. I don't usually track the $RUT, partly because I don't understand it that well and partly because I just can't look at everything. But I did look at it just now. On my chart at least, the daily RSI hit 11.73, which is quite oversold indeed.
DeleteI also see it's right on the 40 day MA (800.39) which is providing some support. And finally, the stochastic (which is an excellent reversal indicator) is quite low and just about to execute a bullish crossover.
So after the pullback that began on 2/24, I see more upside potential than downside risk right now. However, it remains inside the descending RTC. The conservative approach is to wait for it to exit before calling a bottom. That would be in three days assuming it goes no lower than right here.
OTOH, the *monthly* chart of $RUT isn't looking too happy right now. Last month gave us a gap-up inverted hammer reversal warning and this month's candle (though admittedly less than one-quarter cooked) is looking like a dark cloud cover, a reversal warning in its own right.
So bottom line, I'd say that short term (next few days), $RUT could move higher, or at least stop moving lower. However, on a monthly basis, right now it's looking to go lower.
Thanks Michele.
ReplyDeleteYes, too many indicators - analysis paralysis!