Monday lower

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

• Monday lower, low confidence.
• ES pivot 1399.08.  Holding below is bearish.
• Rest of week bias lower technically.
• Monthly outlook: bias up.
• ES Fantasy Trader remains short at 1395.00..

Recap

Tonight, the Night Owl is bumming, because the Olympics just ended.  For the past two weeks I have been gorging on the spectacle day and night.  And now, suddenly, it's all over.  I'm going into withdrawal.  It's all so sad.  Thankfully, the stock market is the show that never ends.  That's one of the reasons I like it.  Whether you're going for the gold or merely sitting in the stands, there's always something for everyone.  And last Friday we got pretty much what we got all week long - more sideways action as the Dog Days bark on.  Will we get a break this week?  Let's take a look.

The technicals (daily)

The Dow: Friday's 43 point gain was in the form of a hanging man, the fifth consecutive reversal candle in a row - and still no reversal.  I really was expecting a break lower.  So we're pretty much in the same waiting-for-Godot mode we've been in for a few days now.  Overbought indicators, sideways action, and daily reversal warnings that require confirmation.

The VIX:  Last week I was talking about support at 14.5 for the VIX and on Friday we got pretty close with a red candle that brought us to 14.74.  Meanwhile, the indicators remain massively oversold and the stochastic is just lying on the floor (%K and %D lines both under 7).  So I have to think the VIX is due for a reversal Any Day Now, but just which day that is, I can't say.

Market index futures: All three futures are running lower at :27 AM EDT with ES down 0.32%.  With three consecutive daily reversal candles that came to naught, this is the first sign we might actually be going lower.  It also brings us to the very edge of the rising RTC that last week's melt-up established.  Any further downside action will give us a bearish setup.  And the indicators just keep getting more overbought.  RSI is now 90.6.  The last time it was this high was right before the big May meltdown.

ES daily pivot: Tonight the pivot ticks down from 1399.33 to 1399.08.  This leaves us right below the new line but so far ES does not seem interested in taking a crack at it.  Unless that happens, this looks bearish.

Dollar index: After two consecutive rising dojis, the dollar lost .1% on Friday with a bearish engulfing pattern.  This would suggest a  move lower on Monday even though the indicators are not particularly overbought.

Euro: On Friday, the euro put in a hammer after two big down days.  After falling further early Sunday evening, it suddenly reversed course right after 9 PM, possibly on some Chinese housing news,and is now right back where it closed on Friday.  The pattern indicates the possibility of a move higher on Monday, but it definitely requires confirmation.

Transportation: After two days of declines, the prospects for the trans brightened somewhat on Friday as they gained 0.3% on a little hammer.  Of course, this too requires confirmation and the indicators remain highly overbought.  It's hard to say where this chart may be going on Monday.


Accuracy (daily calls):

Month right  wrong  no call  conditional  batting   Dow
                                          average  points

April   7      9      2                    .438
May    10      7      3           2        .632  
June    8      6      6           1        .600     632
July   11      2      6           1        .857     917
August  3      3      1           1        .571      21
     And the winner is...

I hate to keep saying this, but nothing's really changed since last week.  We're still overbought and still getting reversal warning candles.  And still not getting a reversal  But it seems more logical to call for the reversal than to expect a break higher under these conditions.  And as I mentioned, back in February, we had a run of 10 straight days of doji-laden sideways motion before getting the break.  So although I was wrong about Friday, I'm going to do it again and call Monday lower.  With TLT gaining half a percent on Friday and clearly looking to have bottomed (about the clearest direction change of any of the charts I follow), the downside is just looking the more sensible option here.

ES Fantasy Trader

Portfolio stats: the account still remains at $174,875 after 56 trades (43 wins, 13 losses) starting from $100,000 on 1/1/12. Tonight we remain short at 1395.00.

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.