Monday lower

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

• Monday lower, low confidence.
• ES pivot 1457.58.  Holding below is bearish.
• Rest of week bias lower technically.
• Monthly outlook: bias uncertain.
• ES Fantasy Trader going short at 1452.50.

Recap

Well I think "uncertain" was a reasonably good call for last Friday with the Dow gaining 0.26% and the SPX losing 0.03%.  So far, October has not proven to be particularly spooky, but there's still three weeks to go.  So let's see where we might be headed as we wend our way towards the elections next month.

The technicals (daily)

The Dow: Friday's 35 point gain came on a bearish shooting star that nearly touched the upper BB and took us entirely out of the left side of the rising RTC which can sometimes be an early bearish sign.  The indicators continue to rise with RSI now overbought though the stochastic is not yet forming a bearish crossover.  This chart is now flashing a yellow caution light.

The VIX:  Meanwhile, the VIX posted a fourth consecutive decline but did it on a gap-down green candle.  This move now gives the VIX a pretty good exponential curve.  And just as exponential run-ups always end lower, a mirror-image move down will eventually go higher.  With the VIX now sitting right at summer-long support, I'd be looking for a reversal higher either Monday or Tuesday.

Market index futures: Tonight all three futures are down at 1:10 AM EDT with ES lower by 0.17%.  On Friday ES gave us a tall spindly doji and the overnight action so far seems to be confirming a top.  RSI has already topped at overbought and the stochastic is very close to a bearish crossover.

ES daily pivot: Tonight the pivot rises from 1452.50 to 1457.58.  This combined with the overnight drift lower in ES now puts us below the pivot by a good five points, a bearish sign.

Dollar index: On Friday the dollar formed a doji warning of a possible reversal higher on Monday.  We have now moved sufficiently down from the last rising RTC that a reversal is possible here.  A move higher in the dollar on Monday would not surprise me.

Euro: And the euro is supporting the idea of a rising dollar right now.  After putting in a doji of its own on Friday, it is now trading lower, down 0.35% already in the Sunday overnight and now below its daily pivot.  Also, its stochastic is just about to form a bearish crossover.  I'd say the euro's going lower on Monday which would be bad for stocks.

Transportation: And finally, the trans chart looks like the Dow - a shooting star following a rising trend off the left edge of the RTC with overbought indicators.  Another sign of impending reversal, possibly though not necessarily 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    2      2      1           0        .500     -16
    And the winner is...

Tonight we've got a bunch of dojis on a bunch of charts suggesting reversals.  Things are really starting to look short-term toppy to me.  I'm just not feeling the love.  Without any major economic news coming out on Monday to juice the market, it's looking like we may finally have a day that's more technically driven than news driven.  If that holds, my expectation is that we'll see Monday lower.

And I'm really going out on a limb saying that, since Columbus Day is historically quite bullish.  I just think that if Monday was going to go with the historical trend, we'd be seeing more positive action from the currencies and futures in the overnight.

ES Fantasy Trader

Portfolio stats: the account still remains at $180,875 after 65 trades (50 wins, 15 losses) starting from $100,000 on 1/1/12. Tonight, we go short at 1452.50.  I'm thinking that if this trade is not profitable on Monday, it will be by Tuesday.  In any case, after not trading once all last week we finally have a chart where the risk/reward ratio seems favorable to putting on a trade.

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.