Monday higher

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

• Monday higher, low confidence
• ES pivot 1433.67.  Holding below is bearish.
• Rest of week bias uncertain technically.
• Monthly outlook: bias lower.
• ES Fantasy Trader standing aside.

Quotes of the Day

“I grew up in a socialist country and I know what that does to people.  There is no hope, no freedom, no pride in achievement.”

                      - Thomas Peterffy, CEO of Interactive Brokers

"You didn't build that."

                     - Barack Obama, President of the United States

Recap

Recall that things were certainly looking toppy last Thursday, and Friday the bottom fell out with the Dow taking a 205 point dump.  There have been four other big down days this year but CNBC was all over this one, comparing it all day long to the October '87 crash, which of course it was nothing even close to.  After a weekend of letting the dust settle, we'll check out the damage on the charts now and see where we may be headed on Monday.

The technicals (daily)

The Dow: Friday's dump took us clear out of the rising RTC for a bearish trigger and very nearly to the lower BB at 13,301.  The 13,325 area is also something of a support line. On the other hand, the stochastic completed a bearish crossover and the other indicators all peaked.  So technically, this chart is still looking bearish.  However, practically, these big down days are often followed by at least one day of DCB, so I'm cautious about calling this chart lower on Monday.

The VIX:  And of course as the Dow fell, the VIX jumped 13.51% on a tall green marubozu that took it to a close of 17.06, which is exactly its upper BB.  Recall that I often mention the propensity of the VIX to not tarry for long around its upper BB, usually coming back down within a day or two.  However, the stochastic just completed a bullish crossover, although that may be distorted by the magnitude of Friday's gains.  I'm thinking the VIX will be moving lower if not Monday, then more likely by Tuesday.

Market index futures: Tonight all three futures are actually up at 1:11 AM EDT with ES higher by 0.32%.

ES daily pivot: Tonight the pivot tumbles from 1453.00 to 1433.67.  While we're still below the new number, it's by a lot less and right now ES seems to be showing some signs of interest in challenging it.  Breaking above by morning would definitely be a positive sign.  Friday's big move down in ES took us almost to support around 1420 and the lower BB at 1418.  Interestingly, unlike a lot of other charts tonight, the stochastic is well past the bearish crossover stage and this evening's gains have been enough to cause RSI and OBV to bottom out.  Although we don't have a classic reversal sign here, it is typical of ES to bounce at least a bit following a big down day and that is what I expect here on Monday.

Dollar index: The dollar gapped up 0.33% on Friday, a move that was enough to just exit oversold territory and complete a bullish stochastic crossover.  I see no technical reason why the dollar can't go higher again on Monday.

Euro: The euro fell again on Friday for a second day in a move that was enough to cause the indicators to peak and complete a bearish stochastic crossover.  That bodes poorly for the euro on Monday.  However, it is actually gaining in the Sunday overnight, now up to 1.3055.

Transportation: The trans were demolished on Friday along with everything else.  Their journey above the 200 day MA was short-lived as they fell right back through it and out of the nice five day rising RTC.  The indicators have all peaked at overbought and the stochastic has completed a bearish crossover. There's some support at 5054, bu that's still a ways from here so I'd say the trans could drop a bit more 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     8      6      8           1        .600     -78
September  8      6      5           0        .571     -19
October    7      4      4           0        .636     217

     And the winner is...

I think the futures sum it up pretty well tonight.  While the charts overall are still fairly bearish, the magnitude of Friday's sell-off is likely to lead to a DCB as bargain hunters step up to the table, especially since we stopped right at a number of support lines on Friday.  .  Note too the rise in both the euro and Swiss franc in overnight trading.  I think we still do have lower to go this week before bottoming, but we might actually manage a positive close tomorrow so I'm going to call Monday higher.

ES Fantasy Trader

Portfolio stats: with a successful short trade last Thursday night good for 17.75 points the account now rises to $193,875 after 68 trades (53 wins, 15 losses) starting from $100,000 on 1/1/12.  Tonight we stand aside.  While I do think we're going higher on Monday, I don't want to get caught in one of these traps where the gains all happen in the evening hours leaving nothing for the rest of the night.  I've had cases where I went long, the market closed up, but I still lost money.  No thank you.

Reminder - you can follow these trades live on Twitter @nightowltrader.  We're averaging only a little more than 1 1/2 trades a week so I won't flood your Twitter feed.

BOT    10    false    ES    DEC12 Futures     1433.50    USD    GLOBEX    OCT 19 12:37:40   
SLD    10    false    ES    DEC12 Futures     1451.25    USD    GLOBEX    OCT 19 01:55:56    

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.