Friday lower

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

• Friday lower, low confidence
• ES pivot 1371.33.  Holding under is bearish.
• Next week bias lower technically.
• Monthly outlook: bias down.
• ES Fantasy Trader going short at 1367.75.

Recap

Last night I called Thursday higher, but added "I'm not expecting a really big up day."  I'd say today's 35 point gain in the Dow qualifies.  What surprised me about today was that we were up at all, considering that all of today's economic news came out worse than expected.  With options expiration tomorrow, Friday should be interesting.

Olympic reminder: With the Olympics starting next week and running for two weeks, the Night Owl is planning on taking some time off to watch the spectacle on TV.  Mr. Market is pretty much in the summer doldrums right now, so I don't think we'll be missing much.  Regular posting will resume after the closing ceremonies.

The technicals

The Dow: Last night I mentioned the importance of the 12,950 resistance line.  The Dow tried and failed to break through this level today.  While we did get a third green candle in a row, today's gain was the smallest so far.  The indicators also continued to move into overbought territory and the stochastic continued setting up for a bearish crossover that could happen on Friday.  We now have three closely spaced resistance points ahead of any further gains: the aforementioned 12,950, the psychological 13K even and the upper BB at 13,011.  This could be a tall order to fill.

The VIX:  Meanwhile, the VIX continued its slide today losing another 4.39% to close at 15.45, a level that has now hit oversold.  However, the VIX remains in its descending RTC and the lower BB is falling away, now down to 15.12.  As I've mentioned often, the VIX is pretty good about respecting the lower BB and we're pretty close to it now.  I'd say we're near the point where the VIX will start rising again, probably in a day or two.

Market index futures: All three futures are now in the red with ES down by 0.33% at 1:07 AM EDT.  While today ES did form a third consecutive green candle to give us a bullish three white soldiers pattern, I think these soldiers are a little battle-fatigued as the action in the overnight has already just about completely retraced the gains of the day.  The stochastic is also within a hair of making its bearish crossover.  And both RSI and money flow have now turned lower from overbought.  This all suggests a chart ready to roll over.

ES daily pivot: Tonight the pivot rises from 1363.42 to 1371.33.  With the overnight drop in ES and the jump in the pivot, we crossed under right at midnight and ES has given no indication of wanting to move higher since then, not a promising sign.

Dollar index: We got a gap-down inverted hammer from the dollar today as it lost another 0.26% and dove into oversold territory.  It stochastic is also setting up for a bullish crossover, probably on Friday.  Interestingly, the euro did not move higher today, canceling its ascending triangle pattern.  If anything, it looks ready to move lower now with it stochastic having just formed a bearish crossover.  This would be bad for stocks.

Transportation: More interesting developments in the trans today.  While the trans gained 0.91%, the Dow was up only 0.27%.  You'd think that would indicate a bearish divergence.  But yesterday I was thinking that the trans might go lower today.  Instead, the developing bearish stochastic crossover was completely short-circuited  When the stochastic starts threading like this, it indicates consolidation or at least a temporary halt to the current trend.  It's also a bit concerning that the trans tried but failed to cross resistance at 5190 today.  None of this guarantees lower on Friday, but it at least calls into question whether we can put in a third day in the green.

Accuracy (daily calls):

Month right  wrong  no call  conditional  batting   Dow
                                          average  points trade

April   7      9      2                    .438
May    10      7      3           2        .632  
June    8      6      6           1        .600     632   +$330
July    8      0      4           1       1.000     616
     And the winner is...

I think we're nearing the short-term top I've been waiting for all week.  In fact, in addition to going short in the ESFT tonight, I took on some SDS at 15.19 in my trading account today as a hedge.  Oh, and although the TLT moved lower again today, it put in a morning star doji today, usually a good reversal indicator.  And a higher TLT would mean lower stocks.  The one outlier is Dr. Copper, who's actually in pretty good shape right now.  But everyone else is looking toppy, and the Dow is down 7 of the last 11 op-ex Fridays, so I'm calling Friday lower.

ES Fantasy Trader

Portfolio stats: with no trade again last night the account remains at $160,625 after 51 trades (40 wins, 11 losses) starting from $100,000 on 1/1/12.  Tonight we go short at 1367.75.  If this trade is not profitable on Friday, I believe it will be on Monday.  Reminder - you can follow these trades live on Twitter @nightowltrader.  I won't flood your feed either - we're averging just under two trades a week so far this year.

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.