Monday uncertain

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

• Monday uncertain, bias slightly lower
• ES pivot 1344.58.  Holding above is bullish..
• Rest of week bias higher technically.
• Monthly outlook: bias down.
• ES Fantasy Trader standing aside.

Recap

Well I thought we'd see higher on Friday but I was surprised at the moxie of the move as the Dow motored ahead 204 points.  This leaves us in an interesting situation, with six straight down days snapped by a big up move.  Was this a one-off or is there more to come?  The answer, my friend, is blowing in the charts...

The technicals

The Dow: Friday's close at 12,(lucky)777 demonstrated, once again, the power of the regression trend channel.  Wednesday we closed just outside the descending RTC - that's the bullish set-up.  Thursday we moved lower still but traded entirely outside the RTC - that's the bullish trigger.  And ka-ching, Friday was the pay-off.  This pop also retraced 50% of the previous downturn to leave us at an interesting juncture.  Volume was hardly convincing, but the indicators have now all clearly bottomed at oversold and the stochastic finally finished the bullish crossover I was talking about last week.  This chart is now looking healthy.

The VIX:  Thursday night I wrote that the VIX "may be signaling a decline on Friday".  I guess it was, since the VIX dropped 8.67% on Friday on a solid red candle.  The close at 16.74 was right at support but the indicators and the futures are both pointing lower.  How much lower?  Well the VIX often likes to touch its lower BB before reversing and that's at 15.79 right now, so maybe another point down.

Market index futures: Tonight, perhaps not unexpectedly, all three futures are back in the red, with ES down 0.2% at 1:24 AM EDT.  Friday's tall green candle popped us right out of the descending RTC for a solid bullish setup.  We'd need to close below 1331 Monday to cancel this setup.  With the bullish stochastic crossover just newly completed and indicators now back on the rise from oversold, more upside here is a distinct possibility.

ES daily pivot: Tonight the pivots jumps from 1329.50 to 1344.58.  Even with ES drifting a bit lower in the overnight, this still leaves us above the new number, though by a lot less than before.  Still, that's bullish unless we break under the pivot.

Dollar index: After giving us a star on Thursday, the dollar dropped 0.4% Friday to close outside its rising RTC for a bearish setup.  With indicators having just peaked and only now starting to come back off very overbought levels, the dollar could very well move lower again on Monday, which would be good for stocks.  Also, the bearish stochastic crossover is now complete.

Also note that Friday's trade in the euro showed that it has indeed found some support at the 1.22 level and exited its own descending RTC for a bullish setup.  Euro higher -> dollar lower -> stocks higher.

Transportation: The daily trans on Friday  were pretty much an analogue to the Dow.  Same big pop, same RTC exit, same bullish stochastic crossover.  Looking good.

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    6      0      3           0       1.000     503
     And the winner is...

While the charts tonight are generally fairly positive, it's good to remember that we're coming off a big gain on Friday.  And as I pointed out after our last big gain on 6/29, the pattern commonly is for big up days to be followed by dojis or small declines, so that's what I'm expecting Monday.  Although my bias is slightly negative, it's not solid enough to warrant a call in that direction.  Therefore I will simply call Monday uncertain.

Note also that Uncle Ben will be talking again on Tuesday and Wednesday and that always throws some uncertainty into the markets.  Should make for another interesting week.

ES Fantasy Trader

 Last Thursday night I put on a long trade that had me nervous.  It was looking like we were due for a bounce but I didn't really have the confirmation on any of the charts that a prudent investor should have.  So I just went for it - and was rewarded with a tidy 14.5 point gain on lucky Friday the 13th.

Portfolio stats: the account now rises to $160,625 after 51 trades (40 wins, 11 losses) starting from $100,000 on 1/1/12. With the lack of a good edge, tonight we simply stand aside..   Reminder: I post these trades live on Twitter @nightowltrader.

SLD    10    ES    false    SEP12 Futures     1347.50    USD    GLOBEX    JUL 13 11:51:30  

BOT    10    ES    false    SEP12 Futures     1333.00    USD    GLOBEX    JUL 13 02:02:52  

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.