Monday, May 14, 2012

Monday maybe higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Monday higher - low confidence..
  • ES pivot 1352.42Holding below is bearish.
  • Rest of week bias higher technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader remains long at 1365.00.

That's what I get for committing hubris.  I was feeling pretty smug around noon last Friday for calling the market higher in the face of a big whoopise from JPM.  After a big dump right out the gate, the Dow had recovered all of its losses and I was looking good.  But how quickly one can go from hero to zero in this game.  It was all downhill from there and the Dow ended the day down 34 points.  So that one goes in the loss column.  But we do not dwell on the past here, we only look to the future.  So that's what the rest of this post is about.

The technicals

The Dow: Ah, the Dow.  As Mick Jagger once sang, "Heartbreaker, with your thirty four", the Dow broke my heart on Friday, giving up all its early gains and putting my account negative for the day.  (OK, and I know it's 44, not 34, but the Dow lost 34).  Uh, so anyway, we got this spinning top following a long decline and highly oversold indicators.  RSI hit 4 on Friday and the stochastic has been lying on the floor for three days now.  But we are still stubbornly stuck in a descending RTC so until I see that breakout, I can only assume we're in for more of the same.

The VIX:  On Friday the VIX rose 5.63% on a tall dragonfly doji.  But since we're not really in a trend either way, I'm not sure this signals a reversal.  The VIX of the VIX seems to be climbing.  Lately we've had three days of gap up and down days.  The futures gave us a hanging man though and are sufficiently overbought as to suggest a move lower Monday, and therefore a lower VIX too.

Market index futures: At 1:26 AM EDT Sunday night (actually early Monday morning), all three futures are in the red.  ES is down 0.22% putting us at the lower end of what is now becoming a fourth day of consolidation.  Given how oversold we are here, the conventional wisdom is that the next move will be up.  I just don't see a sign right now that that will happen on Monday.

ES daily pivot: Tonight the pivot steps down from 1355.67 to 1352.42.  With some aimless trading in the overnight, we remain below this level and that's bad on the face of it.  I need to see ES break above this on Monday morning to have a meaningful shot at a higher close.

Dollar index:The dollar continued its ascent on Friday, hitting its upper BB.  And its indicators are as overbought as they get.  RSI has been pegged on 100 for four days straight now.  Technically, this chart favors a move lower, but what with the Chicoms meddling with the euro and who knows what other monkey business going on behind the scenes, anything's possible.  In any case, a move lower looks likely in the next few days and that would be good for stocks.

Transportation: On Friday, the trans gave us a tall spinning top that along with highly oversold indicators suggest the next move is higher.  So that would be good for stocks in general.

History: According to The Stock Traders Almanac, Monday is historically slightly bullish, but it is up 14 of the last 17.


Month right  wrong  no call
April   7      9      2
May     5      3      1

     And the winner is...

Very strange.  Tonight I'm not really seeing any signs that we're going higher on Monday.  And yet, if I had just returned from an extended journey to Mars and looked at these charts, would I be shorting anything here?  No I would not.  Buy low, sell high, right?  Well, things are looking lower than higher right now so I'm going to call for a higher close Monday simply because I see more upside potential than downside risk at these levels.  But I don't feel really good about saying that.  Watch the ES pivot closely Monday morning.  If we can break above 1352.42, we have a good shot at a higher close.  If not, then we're going lower.  So says I.

ES Fantasy Trader

Portfolio stats:  the account remains $150,125 after 35 trades (28 wins, 7 losses) starting from $100,000 on 1/1  Tonight we're once again still holding on to this long at 1365.00.


  1. Testing testing, probs w comment function, will delete if successful, and post actual comment..

  2. Michele-

    Been having much trouble getting comments to work, for several weeks now, on various blogger sites, including yours (and also J-Trader's). Probably just as well, since most of what I would have remarked ranged from wrong to very wrong, but still...

    Hopefully something internal to them has been cleared up. The 'anonymous' post above was mine, an attempt to rule out any problem with my own default personalized settings...

    1. No, not at all. I'm always glad to hear what you have to say.

      I've noticed the same thing - I've received several emails from Blogspot in the last two weeks about comments that were supposedly posted, but when I check the blog, they're not there. It also appears that Blogspot is performing yet another gratuitous UI redesign, so this may be related to that.

  3. Michele-

    Obviously, with the recent price action in the major indexes over the past few weeks, there are many technical areas of concern to focus on. But one which has troubled me since late February has been the relative weakness of copper futures.

    Using the EOD spot price chart of $Copper, from Stockcharts, one can see that the price of copper, as measured in cents (per whatever), hit a resistance level of around 390--395 in late January, and has bounced off that level at least six times, depending on how you count multiple attempts within a span of several days. Around when the equity market made its double top (the first couple trading days in May), copper also made a secondary top, in its case at a lower level of 385.

    Today it made a multi-month low around 350, plunging 3%. With this move it’s now back at levels last seen in December. “Dr. Copper” is not called Dr. Copper because it lacks forecasting power; if that were the case it would be called Mr. Copper, or Coppo, or somesuch.

    JJC, the copper stock/futures tracking-ETF, closed today with a similar 3% loss, and a very similar chart pattern. It’s way below the 200 day moving average. Likewise the ETF that tracks the Australian market, EWA, closed below the lower Bollinger band, and at levels seen back last December. EWA is now decisively below its 200 day for the first time since January.

    A technician never knows the reason behind any move until the news comes out, and the move is largely over. Whether this reflects a growing conviction that China will NOT engineer a “soft landing”, or that emerging market growth will NOT be able to cushion developed market banking problems, or WHATEVER, this economically-sensitive indicator complex is now unmistakeably alarming.

    The industrial metals and the companies which mine and process them are really where the rubber meets the road, the nitty-gritty of economic development broadly speaking. And their charts are less ambiguous than that of the DIA, SPY, or IWM. They look sickly.

  4. Well the thing is a lot of charts are now really overextended to the downside, not just copper. Although I concentrate on the short term, my view of the monthly SPX chart is telling me right now that we're in a downtrend that's got at least another month to run, and possibly until September.

    Copper in any case, is exactly at a key support level right now (I'm watching $ISC) but remains firmly inside a declining RTC. Tomorrow should clarify a lot of stuff.


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