Monday uncertain - small positive bias

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

• Monday uncertain - small positive bias.
• ES pivot 1414.00.  Holding above is bullish.
• Rest of week bias uncertain technically.
• Monthly outlook: bias up.
• ES Fantasy Trader standing aside.

Recap

As I was thinking, Friday did in fact move higher after Thursday's breakout, with the Dow adding another 25 points and keeping us above that narrow sideways motion that plagued us for over a week.  The question now is how much gas is left in the tank to continue higher on Monday.  Let's run the charts up the flagpole and see who salutes.


The technicals (daily)

The Dow: While a 25 point move might not seem like much, it was important in two ways: first because the Dow did not slip back into its trading range capped for so long at 13,200, and second because it leaves us precisely at the highs of the year, a resistance line that's already been tested and rejected four times in a row.  Is the fifth time the charm?  If we compare the technical environment of those tests to the current one, we see that we're in better shape now than back then, particularly with respect to OBV as I mentioned last week.  Money flow is also a lot lower now than then.  We also have that funny bullish crossover on the stochastic from a high level, now completed.


That said, the weekly chart shows some weakness in its indicators.  They're all quite overbought now and RSI and momentum have actually already turned down.  The weekly candle is also a hanging man, though that hasn't been particularly reliable.  All in all, we're entering a critical juncture for the Dow.  Unfortunately, with everyone waiting on Jackson Hole, it's not clear that we're going to get the answers we're looking for before then.


The VIX:  It wasn't completely clear, but last Thursday night I claimed that "the VIX might go lower Friday.".  And that's what it did, dropping another 5.88% to close at 13.45, even lower than the 13.7 we saw earlier last week and again a level not matched since June 2007. With the bullish RTC breakout canceled, the lower BB falling away, and a bearish stochastic crossover in the futures, there's no reason I can see why we can't move still lower in the VIX, even from these levels.


Market index futures: Tonight all three futures are essentially flat at 1:38 AM EDT with ES lower by 0.04%., YM exactly unchanged, and NQ up 0.02%.  Friday's ES candle was a stubby hanging man that doesn't count for much.  The important thing is that we remain in a rising RTC and have a completed bullish stochastic crossover.  With no real follow-through in the overnight so far, I suppose ES could go either way, but I'm not expecting a major fall on Monday.


ES daily pivot: Tonight the pivot rises again from 1410.08 to 1414.00 even. With ES flat in the overnight so far, this leaves us barely above the new level.  In fact ES just tested it, touching the pivot at 1:10 AM and bouncing off.  Assuming that holds, this is a bullish sign, but when you're this close, you have to watch the pivot closely for signs of a breakdown.


Dollar index: On Friday, the dollar surprisingly gained 0.30% on a bullish harami.  But this chart remains disjointed and I can't make much sense of it technically, so we move right along to...


Euro: the euro, which also gave us a bullish harami on Friday, but seems more inclined to move higher on Monday, and is indeed already up 0.09% in the overnight.

Transportation: Where the Dow gained 0.19% on Friday, the trans gained 0.52% on a solid green marubozu giving us a three white soldiers pattern, generally a pretty good bullish sign.  And although we're now overbought, the stochastic here has yet to even begin flattening out for a bearish crossover.  More gains possible here.



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  5      3      4           1        .667      85
     And the winner is...

This is a tough one.  I'm not really seeing a lot of bearish indications on any of the charts.  However, we are now right up against some significant resistance in the form of the 2012 highs: 13,276 for the Dow and 1420 for the SPX.  The previous attempts to break these levels were rejected.  We're in better shape, technically to mount an assault now than back then.  However, the market seems to be in a holding pattern waiting on more nuggets of wisdom from the Fed.  There's also some signs that the TLT may be bottoming, which would be bad for stocks.

My guess is that Monday is going to be another one of these doji days like we saw last week, possibly with a slight positive bias, so I'm going to have to make the official call as uncertain.

My general feeling is that there is in fact not enough gas in the tank right now to successfully break through this resistance on Monday and that the market is going to have to back off before taking another shot at it - but that's getting ahead of ourselves.


ES Fantasy Trader

Portfolio stats: the account remains at $166,625 after 57 trades (43 wins, 14 losses) starting from $100,000 on 1/1/12.   Since I don't really see an edge either way tonight, we're just going to stand aside again.  Patience is a virtue.


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.