Monday lower

The Hoot 
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• Monday lower, medium confidence.
• ES pivot 1385.67.  Holding under is bearish..
• Rest of week bias mixed technically.
• Monthly outlook: bias down.
• ES Fantasy Trader now trapped long.

Recap

These holiday weeks always disrupt things.  I have to go back to last Wednesday night when I was thinking that Thursday might go higher.  While the Nasdaq did, the Dow fell 14.6 points and since that's what I base my calls on, I was wrong.  But the big bombshell fell on Friday when the markets were closed, with some worse-than-expected employment numbers.  That tanked the futures and dimmed our prospects going forward.  See my previous post, Is the Top In?   Anyway, let's try to make some sense of this mess.

The technicals

The Dow: There's little point in trying to analyze last Thursday's session in view of what happened on Friday.  The fact that we did not get a dead cat bounce or any bounce for that matter only makes it worse.  The best that can be said for this doji is that it once again respected the 13K support line.  I'm pretty sure it isn't going to hold on Monday.

The VIX:  This is really the only bright spot in the charts, though I'm not sure it's going to hold for Monday.  On Thursday, the VIX bounced off its upper BB as expected and closed on a red hanging man, though that was still higher on the day by 1.58%.  Ordinarily I'd say this means the VIX goes lower Monday and that's good for stocks.  But this doesn't factor in the mess we saw in the futures on Friday, so again, I can't draw any technical conclusions here.

Market index futures: Tonight the futures are all down massively from Thursday, with ES leading the way lower at minus 1.08% at 1:07 AM EDT.    After such a huge dump like we got Friday, it is natural to expect some sort of retracement. However, we've seen very little in the way of that so far at least.  ES is admittedly not losing any more right now, but it's still just 3 points off its low set earlier this evening.  Still it is creeping higher ever so slowly, so one cannot yet rule out a retracement to some level.  The first three Fibonacci retracements would be 1377.50 (we're already just two points below that), then 1380.14 and 1382.50 (that's 50%).


There are however a couple of good points here.  First, this big dump took us all the way to the lower BB at 1379.55.  We're actually below that now at 1375.75.  Also, the losses of the last four days have brought all the indicators well into oversold territory.  OBV in particular is lying on the floor, running negative 2M.  That's the sort of extreme reading one would expect before a reversal.

ES daily pivot: The pivot now drops from 1390.67 to 1385.67.  Of course, we're well below even this number.  Not at all encouraging.

Dollar index: On Thursday, the dollar put in a gap-up spinning top/almost doji for 2/3 of a bearish tri-star pattern.  The oversold indicators suggest the dollar is due to move lower, which would be good for stocks.  Trading continued in the euro though and Friday's action there plus today's overnight suggest that the euro has found support around 1.3060.  It is also just now exiting its falling RTC and that's a bullish setup.  And its stochastic is about to make a bullish crossover.  This all suggests a higher euro Monday which would imply a lower dollar which would be good for stocks.

Transportation: The $TRAN on Thursday put in a spinning top after falling for two days indicating at least some indecision.  However, the stochastic just made a bearish crossover suggesting the trans are headed lower, even before factoring in Friday and that's bad for stocks.


History: According to The Stock Traders Almanac, Monday is historically quite bearish in the long term, though the SPX is up 6 of the last 8.  Somehow, I'm not thinking tomorrow is going to make it 7 of 9.

Accuracy:

Month right  wrong

April   2      2

     And the winner is...

Going on the futures alone, I'd have to say Monday will close lower.  That said, there at at least a few positive signs, notably in the movement of the dollar and (possibly) the VIX (which we'll know more about on Monday).  This makes me cautious now about going all out short at this point.  I'd like to wait a bit and at least see how Monday plays out before making that decision.  That said, the monthly charts have weakened considerably due to Friday's move (see my previous post below) and I'm changing my 30 day outlook to negative.  It will be interesting to see the new Ticker Sense Sentiment Survey on Monday.

ES Fantasy Trader

Portfolio stats:  The account remains, for the time being, $137,750, after 28 trades (22 wins, 6 losses) starting from $100,000 on 1/1  Tonight we (unfortunately) remain long at 1397.00.  One nice thing about this being a fantasy trade is that I can take unlimited heat.  I'm afraid that's what we're in for here.  But patience may prevail in the end.  Let's see what Monday brings.


New: Twitter


By popular request, I am going to try an experiment in real-time calls for my ESFT trades in my brand new Twitter feed.  Feel free to follow @NightOwlTrader on Twitter.  For now, you can expect at the most two tweets per day - one entry and one exit.  If this goes well, I may post some of my other trades there too.  Reader feedback is always appreciated.