Monday lower

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

• Monday lower, medium confidence.
• ES pivot 1362.42.  Holding under is bearish.
• Rest of week bias lower technically.
• Monthly outlook: bias down.
• ES Fantasy Trader covers at 1351.50 and now standing aside.
  

Night Owl News 

Tonight I am pleased to announce that the Night Owl Trader has been selected for inclusion in forexpros.com.  This is a great site that's just chock full of useful information, and it's not just for Forex traders either.  You will find there a bounty of well-written commentary and analysis on forex as well as commodities, futures, and individual stocks in the broader market.  And ForexPros is a technician's delight, loaded with charts, metrics, and indicators.

The site is clear, well-organized, and easy to navigate.  I give it my highest Four Hoot rating.  It is now at the top of my  list for reading every day.  I urge all my readers to do the same - I'm sure you will be impressed.  And in honor of this occasion, I am adding a new section on the euro to my nightly mix.  I watch the euro every day and sometimes mention it in my section on the dollar, but I think it warrants its own separate analysis.

And I want to extend a warm welcome to my new readers from ForexPros.  I'm sure you will find something useful here.  The Night Owl publishes every trading day very early in the morning (usually around 1 to 2 AM Eastern time) with my take on the charts and my call for the coming day's close.  You can also follow my ES swing trades live on Twitter @nightowltrader.  Enjoy!

Recap

Last Thursday night I wrote "I think we're nearing the short-term top I've been waiting for all week."  It's now looking like that top is in, as the Dow took a 121 point tumble on Friday after three consecutive up days.  Let's run down the charts now to see where Monday may take us.

The technicals (daily)


The Dow: Friday's big dump was bad news for no fewer than five reasons.  First, it means the Dow was unable to cross the 12,950 resistance line I mentioned last week.  That gives us a double-top, and that spells double trouble.  Second, this took us decisively out of the ascending RTC from 7/12 for a bearish trigger.  Third, this down day saw the highest volume since June 15th.  Fourth, all the indicators have now finally peaked at overbought levels.  And finally, the stochastic just managed to execute its bearish crossover on Friday.  I'm not liking the looks of this chart.

The VIX:  Whew - after looking at that dismal Dow chart, you'd think the VIX would be in pretty bad shape too.  But somewhat surprisingly, it isn't.  Sure, it was up 5.31% on Friday, but the candle was actually a fat little spinning top, and a red one at that.  And it was not enough to break out of the descending RTC from 7/12.  Meanwhile, the stochastic, which looked like it was going to gear up a bullish crossover has sort of threaded out.  So overall, this chart is sort of indeterminate.

Moving out to the weekly though, we've got just three consecutive overlapping red candles that have been putting in lower lows.  But here's something odd - the weekly RSI has hit an astonishing 0.19, a level we haven't seen since November 2002.  And its stochastic is lying flat on the floor.  So I'd say the VIX has nowhere to go but up from here.  Clearly, caution is in order.

Market index futures: All three futures are considerably in the red tonight with ES down 0.55% at 1:54 AM EDT after gapping down on the Sunday evening open.  With the bearish stochastic crossover complete and the indicators all now just coming off overbought, this chart's not looking too healthy.  The only hope here is a support line at 1350.  This was tested once so far just after midnight and a second test is underway as I write.  Breaking 1350 would be bad news indeed, but even if we bounce off we're already in quite a hole making a green candle for Monday problematic.

ES daily pivot: Tonight the pivot drops from 1371.33 to 1362.42.  With ES dropping again Sunday evening, we remain about 10 points below the new value, so that's bearish on the face of it.

Dollar index: The dollar on Friday took a big gap up gaining 0.71% to close decisively outside its descending RTC for a bullish setup.  We now need one more upside day for a bullish trigger.  Given that the indicators have now bottomed at oversold and that the stochastic just formed a clear bullish crossover, a higher dollar Monday is not out of the question, which would be bad for stocks.

Euro: Ah, the poor euro.  This beleaguered currency just can't seem to catch a break.  I had to go out to the weekly chart to find the last time we closed below 1.22 (it was June 2010).  While we're there, the weekly chart shows a three week losing streak with no end in sight.  RSI has only now entered oversold and the lower BB just keeps falling away, now at 1.1976.  Recall that on May 31st I wrote "the euro is trudging downstairs to pay a visit to 1.20."  After a bit of backtracking in June, it looks like we're going to see 1.20 before long after all.  At 1:52 AM EDT, the euro is at 1.2117 and continuing lower.  Lower euro -> higher dollar -> lower stocks.

Transportation: After putting in a tall doji on Thursday, the trans confirmed it on Friday.  And while the Dow lost 0.93% on Friday, the trans lost a substantial 2.21%.  And like the Dow, this came on elevated volume and caused a bearish stochastic crossover.  But - note that what stopped this tall red candle was the 200 day MA at 5069.  The last time this happened, the trans were actually up the next day.  And the previous two times before that, the trans spent no more than two days under the 200 MA before recovering.  So this chart seems to suggest that we might be in for some gains later this week.

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    9      0      4           1       1.000     737

     And the winner is...

Overall, the Sunday night picture is fairly gloomy.  I'm not really seeing much to be cheerful about in the charts, so I'm simply going to call Monday lower.  OK, gotta run - Monther Nature is delivering a rather impressive thunderstorm that's giving us some much needed rain, but I want to get this posted before something bad happens.  That's all she wrote.

ES Fantasy Trader

Tonight we cover last Thursday night's short trade at 1351.50 for a handy 16.25 point profit.  I decided on Friday to hold 'em rather than getting out before the weekend as it looked like there was still more money to be made here with a favorable risk/reward ratio.  If the charts are looking so glum Sunday night, why not continue to hold?  First, we've already got a nice profit and I always hate to give back money on the off-chance I may be wrong about a continuation lower.  Second, I always say it's never good to be too greedy.  Third, I drew RTC's through the 5 minute and hourly charts and they seem to suggest that the Sunday night downtrend may be over for now.  At this point, there's really no need to continue to hold, so ka-ching, we ring the register.

Portfolio stats: the account now rises to $168,750 after 52 trades (41 wins, 11 losses) starting from $100,000 on 1/1/12.  Tonight we're standing aside, since we just exited a trade, contrary to the usual pattern of entering trades late at night.  Reminder - you can follow these trades live on Twitter @nightowltrader.  I won't flood your feed either - we're averaging just under two trades a week so far this year.

BOT    10    ES    false    SEP12 Futures     1351.50    USD    GLOBEX    01:15:49   

SLD    10    ES    false    SEP12 Futures     1367.75    USD    GLOBEX    JUL 20 00:43:10   

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.  Act accordingly.