Actionable ideas for the busy trader delivered daily right up front
- Monday lower, low confidence.
- ES pivot 1465.67. Holding below is bearish.
- Rest of week bias lower technically.
- Monthly outlook: bias uncertain.
- ES Fantasy Trader going short at 1462.00. Switching to the "Z" contract tomorrow.
The Dow continued to push higher on Friday closing at 13,593, a level not seen since May 2007 on the upside and leaving us just 605 points shy of the all-time high back in October 2007. There also seems to be a lot of gathering bullish sentiment after last week's Fed announcement and ECB news the week before - recall that last week's Ticker Sense poll hit its second highest bullish reading of the year last week. Now we need to decide if the market has enough steam to keep on chugging or if they're going to start running for the exits on Monday. Let's peruse the charts.
The technicals (daily)
The Dow: I was expecting a doji on Friday but instead got a stubby hooting star - still a bearish pattern. And the indicators continue to rise, now being extremely overbought. This chart now looks ready to roll over.
The VIX: On Friday the VIX rose 3.27% even as the market rose too, an unusual event. And it gained 3.27% on a bullish piercing pattern, one of the most reliable candlestick reversal patterns. It also respected its support at 13.50. With the same pattern in the futures, I'm thinking the VIX is going higher on Monday.
Market index futures: Tonight all three futures are down at 1:24 AM EDT with ES lower by 0.24%. On Friday ES gave us an inverted hammer the likes of which we haven't seen in this latest rally. Combined with a volume spike, this sort of looks like a blow-off top. We remain above the upper resistance line of the rising wedge that ends on Friday but so far at least, ES seems to be unable to cross the 1465 line. Note: I'll be switching to the "Z" contract tomorrow.
ES daily pivot: Tonight the pivot jumps again from 1452.17 to 1465.67. After drifting lower all evening, we crossed under the pivot right at midnight, so this particular indicator is now bearish. Unless ES can break above the new pivot by morning, it's not looking good.
Dollar index: On Friday the dollar broke right through its support and gapped down to form a long spindly doji to close at its lowest level of the year and breaking right through its lower BB on both the daily and weekly charts. The indicators are now extremely oversold on both daily and weekly charts. All together, this looks like the dollar will be wanting to go higher Monday, or Tuesday at the latest.
Euro: After a small decline last Monday, the euro made progressively larger gains every day for the rest of the week giving the chart and exponential run-up look to it. These things can't go on forever and right now the euro is forming a doji, something we haven't seen at this hour since the big push began last week. This is at least a warning that the euro may be ready to move lower on Monday. The indicators are now entering their eighth day at overbought. The last time this happened was in February 2011, and the next day was lower.
Transportation: On Friday the trans rolled on, continuing their march higher with a 0.26% gain that kept them solidly inside a rising RTC from 9/6. However, the RSI hit 100 on Friday - it doesn't get any more overbought than that. And that's the first time this year we've hit this level. Every other top this year came right after RSI's moved above 94. I'd say the trans are about to hit a detour on Monday.
Accuracy (daily calls):
Month right wrong no call conditional batting Dow
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 8 6 8 1 .600 -78
September 3 3 3 0 .500 -116
And the winner is...
Historically, this particular Monday (the Monday before September options expiration) is weak. We are also now leaving the strongest part of September, which is generally a bad month (though that hasn't been the case this year, thanks largely to the ECB and the Fed). Add in the charts that tonight are showing some significant bearish reversal signs and I'm going to have to call Monday lower.
I'll also add a purely personal indicator: so far this year my longest daily winning streak has been five days, and that's happened a bunch of times. Last Friday marked the fifth day in a row I made money. For whatever reason, that favors a losing day on Monday.
ES Fantasy Trader
Portfolio stats: the account remains at $178,125 after 62 trades (47 wins, 15 losses) starting from $100,000 on 1/1/12. Tonight we go short at 1462.00..
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.