Monday, June 25, 2012

Monday maybe lower

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Monday lower, low confidence
  • ES pivot 1325.58.  Holding under is bearish.
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias down.
  • ES Fantasy Trader going short at 1320.25..

Friday was an interesting day.  I thought it would depend on the ES pivot.  However, in the end, the Dow gained 67 points even though ES never managed to break above its daily pivot.  That's fairly unusual.  Still my overall expectation of either a doji or a DCB was pretty much met, with the latter.  The big question now is what happens two days after a big drop.  To quote those noted market technicians Led Zeppelin, "Ooh, really makes me wonder".  Let's see if we can build a stairway to heaven this week.

The technicals

The Dow: It's easy to dismiss Friday's 0.53% gain as a DCB.  But I look at the above average volume (and in fact rising for three straight days) and I wonder if the bears really have what it takes to drive this market lower.  Notably, OBV has been rising slowly but steadily since June 4th - not the sort of action you'd expect in a market decline.  On the other hand, the stochastic is pretty much in declining mode.

The VIX:  Friday the VIX put in a bullish harami reversal pattern.  This pattern requires confirmation but we also note that the VIX closed exactly on the edge of the descending RTC, just barely missing a bullish trigger.  The weekly chart though is a giant bearish engulfing pattern, suggesting a lower VIX to come this week.

Market index futures: Tonight all three futures are running the the red at 1:32 AM EDT with ES lower by0.49%.  The developing candle is forming a bearish harami (though technically this pattern should be preceded by a move upward).  Still, the fact that there does not seem to be anything in the way of follow-through developing in the overnight so far suggests something of a lack of enthusiasm for Monday.

ES daily pivot: And tonight the pivot drops from 1329.67 to 1325.58.  After running under the old number all evening, we're still below the new level, just not by quite as much.  Still, with ES basically just meandering, this isn't a particularly encouraging sign.

Dollar index: Dark days for the dollar.  Dark cloud cover to be precise.  Which is the candle the dollar put in on Friday.  Always a good sign of lower to come.  And a lower dollar would be good for stocks, assuming the long-standing but recently tested inverse correlation holds.

Transportation: In a telling bit of divergence, on Friday while the Dow was busy adding on 0.53%, the trans actually fell 0.83%.  Hoot, hoot!! Dow Theory alert!  And to amplify a bit, I'll note that the indicators are all now clearly marching down the slope from overbought.  As pilots stuck in icing like to tell ATC, "looking for lower".

Accuracy (daily calls):

Month right  wrong  no call  conditional  batting average points trade
April   7      9      2                        .438
May    10      7      3           2            .632

June    5      5      5           1            .455        207   +$167

     And the winner is... 

Once again we have a somewhat murky technical situation.  The Dow is sort of confused right now and the VIX is giving at least hints of going higher Monday.  On the other hand, the dollar looks ready to go lower (for higher stocks).  But there's a warning from the trans suggesting lower stocks.  It's not a slam dunk by any means, but I'm going way out on a limb and  leaning to a lower close on Monday.  The balance seems to come down on the minus side - just.

ES Fantasy Trader

Portfolio stats: With no trade last Friday, the account remains at $126,750 after 45 trades (34 wins, 11 losses) starting from $100,000 on 1/1  Tonight we go short at 1320.25.

CUA (Commonly Used Acronyms)

BB - Bollinger Bands
DCB - Dead Cat Bounce
MA - Moving Average
RTC - Regression Trend Channel
YTD - Year To Date

Disclaimer: (My lawyer made me do it) This blog is not trading or investment advice, account management or direction.  All trades listed here are presented only as examples of the author's personal trading style.  Investing entails significant risk and trading entails even greater risks.  Deal with it.


  1. Great trade, just read you analysis and everything is playing out well.

    1. Thanks! The short trade worked nicely and it looks like we're still on track for a lower close.


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