Friday uncertain

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

• Friday uncertain.
• ES pivot 1347.08.  Holding above is bullish.
• Next week bias higher technically.
• Monthly outlook: bias down.
• ES Fantasy Trader standing aside.

Recap

Well I was expecting a reversal today or Friday, but I wasn't expecting a 200 point plus skyrocket.  It was another of those days where all the excitement was over in the first four minutes after the starting gun went off.  After that, we sagged a little, but then recovered to finish the day up a hefty 212 points on the Dow, retracing most of the losses from our last big three day losing streak.  Of course, big up days like this always make me nervous.  Is there more in store or was this a one-off?  We pick out way through the charts like Diogenes for an answer.

The technicals (daily)

The Dow: Today's supersized green candle took the Dow out of its descending RTC with a bang for a bullish trigger.  It also finally executed the bullish crossover on the stochastic I've been waiting for.  The only caveat is that volume was a bit below normal, causing some to question whether this rally is "real" or not.  Skip to the end for my take on this.

The VIX:  Last night I wrote "it's more likely that the VIX goes lower Thursday than higher".  And so it did, down a whopping 9.36% to form a classic doji.  While that only reflects indecision, I note that the stochastic today just managed to eke out a bearish crossover, so there's definitely more downside possible on Friday.

Market index futures: Tonight all three futures are running higher at 1:05 AM EDT with ES up 0.22%.  Today's outsized green candle sent ES clear out of its descending RTC for a bullish trigger.  And the stochastic bullish crossover is now complete so even after today's big advance, this chart is still in good shape.  The fact that we're seeing some positive follow-through even after today's gains is a good sign too.

ES daily pivot: Tonight the pivot jumps from 1332.08  to 1347.08.  With ES running a bit higher in the overnight, that still leaves us above the new number, but only by half as much.  Nonetheless, this remains a positive sign for Friday.

Dollar index: Last night I wrote "Everything's in agreement here for a lower dollar on Thursday, which would help stocks."  Well turns out it was and it did, with the dollar dropping a giant 0.93% for a gap-down doji.  The indicators are all now off overbought and the  stochastic bearish crossover is complete.  My only concern now is that big gaps like this tend to want filling, especially when they end in a doji.  So the indicators notwithstanding, I'll have to be cautious about expecting further dollar downside on Friday.  We're going to want some confirmation first.

Euro: And the euro clearly benefited greatly from Super Mario's comments in the news, ending the day at 1.2293, right back to its mid-month resistance line.  With a solid green candle today and rising indicators, there's nothing on this chart suggesting a reversal.  However, we are at a resistance line, so Friday's going to be all about whether the euro's upward momentum is enough to overcome this level.  This will be interesting, given that the movement of the euro is so highly influenced by politics.

Transportation: Today the trans were pretty much in line with the Dow.  Same bullish RTC exit, same bullish stochastic crossover.  And all the indicators have now turned upward from oversold levels, always a good sign that the bottom is in.  The trans are pretty clearly telegraphing that the recent slide is over.


Accuracy (daily calls):

Month right  wrong  no call  conditional  batting   Dow
                                          average  points trade

April   7      9      2                    .438
May    10      7      3           2        .632  
June    8      6      6           1        .600     632   +$330
July   11      1      5           1        .923     981

     And the winner is...

Just as the market often exaggerates the downside, it often overdoes it to the plus side.  I think Thursday was one of those days.  And I'll note again that the recurring pattern this year has been for big up days to be followed by either a doji day or a small loss as the market digests the gains.  We are also now back close to the resistance line at 12,950 that stopped the market on its last two attempts to cross it earlier this month.  One thing that bears watching though is that this time, we are a lot further from overbought than the lat two times the market was gearing up for the assault on 12,950.  But it's not clear that the attempt will come on Friday.

So even though the charts are all looking quite bullish right now, I'm not convinced that Friday will be a positive day although my expectations are for more gains to follow early next week.  But since I'm expecting a doji on Friday, it's hard to call the close either higher or lower, so I'll simply state that Friday's close is uncertain.  My guess, but this is only a guess, is that with such a big open gap the market may well sag into it a bit as traders lock in some profits and head to the sidelines for the weekend.


ES Fantasy Trader

I was reasonably confident that we'd turn a profit today with last night's long trade and so it was, to the tune of 14.5 points.  Then when I tried to post the trade to Twitter shortly after noon, I was greeted with a "sorry, we're down" screen.  But as luck would have it, ES had moved even higher by the time Twitter came back online, so no harm done.

Portfolio stats:  the account now rises to $176,000 even after 53 trades (42 wins, 11 losses) starting from $100,000 on 1/1/12.  Tonight we are standing aside, given my expectations of little market movement on Friday.  Remember, nothing ventured, nothing lost.

Reminder - these trades are posted live on Twitter @nightowltrader (when Twitter isn't down that is).

SLD    10    ES    false    SEP12 Futures     1349.50    USD    GLOBEX    12:31:24

BOT    10    ES    false    SEP12 Futures     1335.00    USD    GLOBEX    01:24:02    

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.
 

Thursday higher

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

• Thursday higher, low confidence.
• ES pivot 1332.08.  Holding above is bullish.
• Friday bias higher technically.
• Monthly outlook: bias down.
• ES Fantasy Trader going long at 1335.00.

Recap

Ha - after watching the Dow fall big time for three straight days and seeing no sign of a reversal, I call the market lower and what happens - the Dow goes higher.  Not that I particularly mind since I'm always net long, but still...  At least the SPX and Nasdaq were both down, but my call was for the Dow.  Let's look at the charts to see if the tide may be turning.

Olympic reminder: With the Olympics opening Friday evening, the Night Owl is planning on taking a brief vacation for the duration, my first in over three years of writing this blog every night.

The technicals (daily)

The Dow: Today's small green candle retraced 50% of Tuesday's losses.  More importantly, it canceled the three black crows pattern.  However, it did not take us out of the descending RTC.  On the other hand, RSI has now turned upward and the stochastic is now closer to forming a bullish crossover, though it's still not there yet.  So today's action, though technically mostly positive does not rule out the possibility of another down day on Thursday.

The VIX:  Last night I was thinking that the VIX could go higher today based on a bullish engulfing candle.  Instead, the upper BB exerted its influence and after testing it for the third day in a row, the VIX finally retreated to close down 5.52% at 19.34.  This now gives us a bearish harami.  Note that I'm calling it bearish largely because the VIX is at elevated levels, right up against the upper BB with overbought indicators.  From here I'd say it's more likely that the VIX goes lower Thursday than higher.  The VIX futures have a similar pattern, so that supports this idea.

Market index futures: The futures were mixed as I began writing this post, but are now turning positive.  NQ and YM are both up slightly, while ES has moved out of the red to exactly break-even at 1:16 AM EDT in a trend that began at midnight EDT.  Today's ES candle was a bullish tomahawk ( a hammer with a small upper wick) that snapped a three-day losing streak and canceled the three black crows pattern here like we saw in the Dow.  While that was not enough to cause a bullish RTC setup, the new Wednesday evening candle is trading outside the RTC and that's the bullish setup.  Also, the stochastic is now very close to forming a bullish crossover - could happen Thursday.  I am now much more optimistic about this chart than I was Tuesday night.

ES daily pivot: Tonight the pivot ticks down from 1333.25  to 1332.08, the smallest drop in several days.After threading about the old value on Wednesday evening, ES has apparently decided to start moving above the new level as I write this, a positive sign.

Dollar index: With no technical warning, the dollar ($USDUPX) dropped 0.6% today for a gap-down inverted hammer that caused a top in RSI and left the stochastic near a bearish crossover.  The loss was enough to take us outside the latest rising RTC for a bearish setup too.  Everything's in agreement here for a lower dollar on Thursday, which would help stocks.

Euro: Meanwhile the euro had a big gain today that completely erased its losses of the last two days, cementing its support at 1.207.  And, mirroring the dollar, this gain took us outside the descending RTC for a bullish setup.  And after declining in Wednesday evening trade, the euro took a sudden change of course to begin moving higher at the stroke of midnight Eastern, like the market futures.  I'm not sure what the cause is, although there's been renewed QE chatter lately that might be helping out here.

Transportation: While the Dow was up a bit today, the trans were down again for the fourth straight day.  However, today's loss was the smallest, just 0.39% to form a clear doji right on the lower BB with oversold indicators and a stochastic setting up for a bullish crossover.  This now gives us a potential reversal sign, though it requires confirmation on Thursday.  In any event, I'd not be shorting the trans from here right now.


Accuracy (daily calls):

Month right  wrong  no call  conditional  batting   Dow
                                          average  points trade

April   7      9      2                    .438
May    10      7      3           2        .632  
June    8      6      6           1        .600     632   +$330
July   10      1      5           1        .917     779

     And the winner is...

It now appears that the most recent slide in the market may be broken.  There are now definite signs of a reversal on many of the charts I follow.  So barring some new overnight calamity out of Europe or really horrible jobs numbers, I'm going to call Thursday higher.

ES Fantasy Trader

Portfolio stats: with no new trade entered last night again, the account remains at $168,750 after 52 trades (41 wins, 11 losses) starting from $100,000 on 1/1/12.  Tonight we are going long at 1335.00.  I think we're now close enough to a turning point to make a reasonable entry here, although a more conservative approach would be to actually wait for evidence that the bottom is in.  Still, I believe that if this trade is not profitable on Thursday, it will be on Friday.  Reminder - these trades are posted live on Twitter @nightowltrader.

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.
 

Wednesday lower

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

• Wednesday lower, low confidence.
• ES pivot 1333.25.  Holding below is bearish.
• Rest of week bias lower technically.
• Monthly outlook: bias down.
• ES Fantasy Trader standing aside.

Recap

Last night I mentioned that the ES pivot was important to watch this morning.  At 2:10 AM ES broke decisively under the pivot and stayed there, aside from a short-lived attempt to retake it just before the open.  And it was all downhill from there with the Dow ending down 104 points, a decline I wasn't expecting.  Apparently, the pain in Spain trumped some good economic news out of China.  We've now got three triple-digit losing days in a row.  What are the odds of making it four?  Let's check the charts.

The technicals (daily)

The Dow: Today the Dow put in an almost identical fat hammer candle to yesterday's, finishing well off the intraday lows.  What's important here is that we tested support of the 200 day MA at 12,523 with the session low, 12,522, and it held, with a closing rally to end at 12,617.  However, we remain firmly in a descending RTC and the indicators continue their move down from overbought, still several days away from oversold.

The VIX:  The VIX put in an unusual bullish engulfing pattern that completely retraced yesterday's red candle and took to VIX right back to its upper BB.  That makes two consecutive days of touching and that's usually it before the VIX heads lower.  (Early May was a notable exception when the VIX spent 6 days on the upper BB before retreating).  RSI just entered overbought but the stochastic isn't close to making a bearish crossover.  Just looking at this chart I'd say that more upside on Wednesday isn't out of the question, and that would be bad for stocks.

Market index futures: Tonight, all three futures are in the red at 2:01 AM EDT, with ES lower by 0.23% and NQ actually down an impressive 0.88% (no doubt largely due to Apple).  .The continuing drop in ES today gave us a bearish three black crows pattern and kept us firmly inside the descending RTC, all of which suggests further downside to come.  But - the stochastic is now precisely positioned at the spot from which the last three reversals have come after big declines.  ES is also now exactly at a support line at 1327, following a dip below right after the close on Tuesday.

ES daily pivot: Tonight the pivot drops again  from 1344.17 to 1333.25.  The upward drift in ES beginning this evening has cut the distance below the pivot in half, but we're still in a rather bearish position here

Dollar index: Yesterday's gap-up inverted hammer was totally negated today as the dollar just continued roaring higher.  It has now broken resistance at 57.90 and significantly broke over its 200 week MA today, stopping at 58.07, just short of resistance at 58.10 that goes all the way back to January 2011.  And while I'm on the weekly chart, I note that the indicators there are still not overbought.  The daily indicators aren't either for that matter, though they're getting close.  But with the daily upper BB now at 58.25, we don't really have a reversal warning on this chart yet.

Euro: After seeming to find some support on Monday, the euro just resumed its downward march today, hitting 1.2051 just after noon before recovering to 1.2079 at 1:51 AM EDT.  At any rate, this action just drove us further into oversold territory and the stochastic is now quite close to executing a bullish crossover, possibly as early as Wednesday.  That said, the euro now has no support until 1.1975 going way back to June 2010.  And the last time we hit that level, we'd been oversold for six straight weeks.  Right now, the euro is only just entering oversold on a weekly basis.

Transportation: The trans lost 1.18% today on a second hammer just like the Dow.  This one closed right on the lower BB and brought the indicators into oversold territory.  The stochastic is now positioned to form a bullish crossover by Friday and is in a position from which reversals occurred the last three times it was at these levels.


Accuracy (daily calls):

Month right  wrong  no call  conditional  batting   Dow
                                          average  points trade

April   7      9      2                    .438
May    10      7      3           2        .632  
June    8      6      6           1        .600     632   +$330
July   10      0      5           1       1.000     838





     And the winner is...

This is a real tough one.  The charts are still looking quite bearish.  J-Trader is going long but Forexpros has a "strong sell" on the majors.  I think we're getting near the point where a bottom is in, but I don't think it will be Wednesday.  We might see a hammer form, but overall I have to believe that we're in for a lower close Wednesday.  But I also think we may get a bounce by Thursday.

ES Fantasy Trader

Portfolio stats: with no new trade entered last night again, the account remains at $168,750 after 52 trades (41 wins, 11 losses) starting from $100,000 on 1/1/12.  Tonight we simply stand aside because although I think there's still some downside left, we are now sufficiently far down the current decline where the risk/reward no longer favors the short side, but it's also still too early to go long.

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.
 

Tuesday uncertain

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

• Tuesday uncertain.
• ES pivot 1344.17.  Waiting for a decisive move above or below.
• Rest of week bias lower technically.
• Monthly outlook: bias down.
• ES Fantasy Trader standing aside.

Recap

The Dow was down almost 200 point right out the gate this morning, reflecting the storm clouds we noticed in the charts on Sunday evening.  But once that was out of the way, it was pretty much a steady grind back up to finish at 12,721 for a full 50% retracement.  Was this the summer thunderstorm that clears the air, or is there more rain on the way?  You don't need a weatherman, all you need are charts and we got 'em.  Read on...

The technicals (daily)


The Dow: Much was made in the press today about the Dow's second "triple digit loss" in a row.  OK, 101 points down is bad but it's not the 400 point swoons we were getting this time last summer.  And more importantly, today's candle was not solid red, it was a hammer.  Nevertheless, the indicators are all clearly in downward mode from overbought, so it would be premature to be calling for a Dow reversal just yet.  Still I can't help but come back to the way this hammer formed - it was a big dump out the gate followed by a pretty steady retracement.

The VIX:  Today, not surprisingly, the VIX took a giant pop to jump over 14% - but it did it on a long red candle that just touched the upper BB.  As I've often noted, the VIX rarely spends more than a day or two at its upper BB before reversing.  Given the fact that  the touch occurred at the open and the VIX was actually down big on the day, I'd be surprised if we retraced this whole decline on Tuesday.  Plus we've now got a big gap that's looking to be filled.  Still, the indicators have not yet reached overbought.  On the other hand, the last three times the VIX peaked, the indicators never reached overbought.  Plus, the futures put in a big gap-up evening star today on high volume which would support the idea of a VIX reversal.  So all in all, I wouldn't be surprised to see th VIX move lower Tuesday.

Market index futures: Tonight all three futures are just ever so slightly in the green at 1:03 AM EDT with ES up by 0.06%.  While we did fall out of the rising RTC for a bearish trigger, we've also come down so far that the indicators are already nearing oversold levels and the stochastic is within two days of forming a bullish crossover.  And the lack of continued downside in the overnight so far (unlike last night) at least suggests the possibility that we've reached some sort of support at these levels.

ES daily pivot: Tonight the pivot drops from 1362.42 to 1344.17.  With ES essentially flat in the overnight so far, this puts us exactly on top of the new number.  Seeing which direction ES eventually decides to go will say a lot about Tuesday's close.

Dollar index: The dollar took a big pop today but did it on a red gap-up inverted hammer.  The close of the $USDUPX at 57.84 tested, but failed to breach resistance at 58.  Although all the indicators are now off oversold and moving higher, this sort of candlestick is at least a warning that the dollar might move lower Tuesday, which would help out stocks.

Euro: Interestingly, while the dollar gained big time, the euro did not fall correspondingly on Monday.  After hitting a low of 1.2076, just above my target of 1.20, it rallied to end with a doji.  The indicators here are still oversold and the stochastic has yet to form a bullish crossover.  Still, the euro is forming a green candle in the overnight suggesting it may have found a modicum of support here.  This should also help out stocks.


Transportation: Today the trans gave us another big loss, down 1.18% that punched under the 200 day MA but forming a fat hammer in the process, more of a mallet actually.  They also touched the lower BB intraday.  So far, there's nothing to suggest the developing pattern won't be like the other three times we went under the 200 day MA going back to May.  If this holds true, then we might expect a positive day for the trans within a day or two.  The hammer itself is a reversal indicator, but one that requires confirmation.


Sentiment: Once again it's time for the latest weekly TickerSense Blogger Sentiment Poll.  We continue to track the poll to see how well it performs.  Here's the updated cumulative list for this year:

Wk.# Week   % Bullish  % Bearish  NightOwl SPX  Accuracy

  1  1/3        46         21        +     1258   1/1

  2  1/9        56         37        +     1278   2/2

  3  1/17       41         33        +     1289   3/3

  4  1/23       46         32        +     1315   4/4

  5  1/30       48         31        +     1316   5/5

  6  2/6        56         30        +     1345   6/6

  7  2/13       48         31        +     1343   7/7

  8  2/21       44         32        +     1361   8/8

  9  2/27       48         24        +     1366   9/9

 10  3/5        43         26        +     1370  10/10

 11  3/12       46         32        +     1371  11/11

 12  3/19       46         29        +     1404  11/12

 13  3/26       39         29        +     1397  11/13

 14  4/2        42         21        +     1408  11/14

 15  4/9        25         46        -     1398  12/15

 16  4/16       26         48        -     1370  13/16
 17  4/23       30         48        -     1379  14/17

 18  4/30       44         32        +     1403  14/18

 19  5/7        23         50        -     1350  15/19

 20  5/14       32         44        -     1353  16/20

 21  5/21       30         52        -     1295  16/21

 22  5/29       35         42        -     1318  16/22

 23  6/4        32         48        -     1278  16/23

 24  6/11       28         40        -     1326  16/24

 25  6/18       39         26        -     1343  16/25

 26  6/25       38         46        -     1335  16/26

 27  7/2        41         40        -     1362

 28  7/9        42         38        -     1355

 29  7/16       44         32        -     1357

 30  7/23       33         42        -     1363

Again, the SPX number is the closing price of the S&P on the Friday before each new poll comes out.  The "NightOwl" column is how I voted.  Since the poll is for 30 days out, after the first four weeks we're able to see how well we did.  This week we see that my bearish call on 6/25 was wrong (again), the S&P now being higher than then.  I take some comfort in the fact that the poll as a whole was wrong that week too.  I'm using the column "Accuracy" to track my calls.  So now I'm 16 for 26 .  After an impressive start this year, my monthly calls have now been wrong for seven weeks running.   For the record, I voted bearish once again this week, based on my reading of the SPX monthly and weekly charts.

This week we see an impressive change of heart in the poll.  The majority is now joining me in voting bearish.  However, I note that there were eight weeks of even greater bearish sentiment this year so far.  I think what we have here is cause to worry, since the readings aren't sufficiently extreme as to be contrarian bullish.

Accuracy (daily calls):

Month right  wrong  no call  conditional  batting   Dow
                                          average  points trade

April   7      9      2                    .438
May    10      7      3           2        .632  
June    8      6      6           1        .600     632   +$330
July   10      0      4           1       1.000     838

     And the winner is...

Alert reader Daniel called this market "tricky and treacherous" tonight and truer words were never spoken.  Right now, the general gist of the charts might be summarized as "the worst is over" but it's premature to declare an all-clear.  I'll note that the TLT hit its upper BB today while copper hit its lower BB.  Treacherous indeed.  And clearly the overnight ES boys sense this too, as ES has been just threading around the pivot looking for direction as I've been assembling this post.  Fifteen minutes ago we were a point below, now we're a point above.

Tonight I'm seeing a lot of contradictory messages in the charts, with candlesticks pointing one way while indicators point the other.  The conventional reading here would suggest we're going lower again on Tuesday, but something's holding me back from calling that.  I keep coming back to the fact that the futures are not guiding lower tonight.  In fact ES jumped out of two different descending RTC's on its Monday hourly chart.  It really feels like the selling pressure is abating and in the resulting slack tide one can get a variety of curls and eddies before the next wave comes in.  (How's that for a nautical metaphor?)


So bottom line, this one is too tough for me, so no call for Tuesday.  If I had to take a wild guess I'd say we might get another hammer day Tuesday, but I'm not making that official.  And I don't think we'll get another triple digit loss day for the Dow.  I'll also hazard that when and if ES ever makes up its mind which side of the pivot it wants to move on, that will help determine Tuesday's close.  So check that out in the morning - is ES above or below1344.17?



ES Fantasy Trader

Portfolio stats: with no new trade entered last night, the account remains at $168,750 after 52 trades (41 wins, 11 losses) starting from $100,000 on 1/1/12.  Tonight we simply stand aside until we can figure out which side of the fence ES is going to come down on. 

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.

Monday lower

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

• Monday lower, medium confidence.
• ES pivot 1362.42.  Holding under is bearish.
• Rest of week bias lower technically.
• Monthly outlook: bias down.
• ES Fantasy Trader covers at 1351.50 and now standing aside.
  

Night Owl News 

Tonight I am pleased to announce that the Night Owl Trader has been selected for inclusion in forexpros.com.  This is a great site that's just chock full of useful information, and it's not just for Forex traders either.  You will find there a bounty of well-written commentary and analysis on forex as well as commodities, futures, and individual stocks in the broader market.  And ForexPros is a technician's delight, loaded with charts, metrics, and indicators.

The site is clear, well-organized, and easy to navigate.  I give it my highest Four Hoot rating.  It is now at the top of my  list for reading every day.  I urge all my readers to do the same - I'm sure you will be impressed.  And in honor of this occasion, I am adding a new section on the euro to my nightly mix.  I watch the euro every day and sometimes mention it in my section on the dollar, but I think it warrants its own separate analysis.

And I want to extend a warm welcome to my new readers from ForexPros.  I'm sure you will find something useful here.  The Night Owl publishes every trading day very early in the morning (usually around 1 to 2 AM Eastern time) with my take on the charts and my call for the coming day's close.  You can also follow my ES swing trades live on Twitter @nightowltrader.  Enjoy!

Recap

Last Thursday night I wrote "I think we're nearing the short-term top I've been waiting for all week."  It's now looking like that top is in, as the Dow took a 121 point tumble on Friday after three consecutive up days.  Let's run down the charts now to see where Monday may take us.

The technicals (daily)


The Dow: Friday's big dump was bad news for no fewer than five reasons.  First, it means the Dow was unable to cross the 12,950 resistance line I mentioned last week.  That gives us a double-top, and that spells double trouble.  Second, this took us decisively out of the ascending RTC from 7/12 for a bearish trigger.  Third, this down day saw the highest volume since June 15th.  Fourth, all the indicators have now finally peaked at overbought levels.  And finally, the stochastic just managed to execute its bearish crossover on Friday.  I'm not liking the looks of this chart.

The VIX:  Whew - after looking at that dismal Dow chart, you'd think the VIX would be in pretty bad shape too.  But somewhat surprisingly, it isn't.  Sure, it was up 5.31% on Friday, but the candle was actually a fat little spinning top, and a red one at that.  And it was not enough to break out of the descending RTC from 7/12.  Meanwhile, the stochastic, which looked like it was going to gear up a bullish crossover has sort of threaded out.  So overall, this chart is sort of indeterminate.

Moving out to the weekly though, we've got just three consecutive overlapping red candles that have been putting in lower lows.  But here's something odd - the weekly RSI has hit an astonishing 0.19, a level we haven't seen since November 2002.  And its stochastic is lying flat on the floor.  So I'd say the VIX has nowhere to go but up from here.  Clearly, caution is in order.

Market index futures: All three futures are considerably in the red tonight with ES down 0.55% at 1:54 AM EDT after gapping down on the Sunday evening open.  With the bearish stochastic crossover complete and the indicators all now just coming off overbought, this chart's not looking too healthy.  The only hope here is a support line at 1350.  This was tested once so far just after midnight and a second test is underway as I write.  Breaking 1350 would be bad news indeed, but even if we bounce off we're already in quite a hole making a green candle for Monday problematic.

ES daily pivot: Tonight the pivot drops from 1371.33 to 1362.42.  With ES dropping again Sunday evening, we remain about 10 points below the new value, so that's bearish on the face of it.

Dollar index: The dollar on Friday took a big gap up gaining 0.71% to close decisively outside its descending RTC for a bullish setup.  We now need one more upside day for a bullish trigger.  Given that the indicators have now bottomed at oversold and that the stochastic just formed a clear bullish crossover, a higher dollar Monday is not out of the question, which would be bad for stocks.

Euro: Ah, the poor euro.  This beleaguered currency just can't seem to catch a break.  I had to go out to the weekly chart to find the last time we closed below 1.22 (it was June 2010).  While we're there, the weekly chart shows a three week losing streak with no end in sight.  RSI has only now entered oversold and the lower BB just keeps falling away, now at 1.1976.  Recall that on May 31st I wrote "the euro is trudging downstairs to pay a visit to 1.20."  After a bit of backtracking in June, it looks like we're going to see 1.20 before long after all.  At 1:52 AM EDT, the euro is at 1.2117 and continuing lower.  Lower euro -> higher dollar -> lower stocks.

Transportation: After putting in a tall doji on Thursday, the trans confirmed it on Friday.  And while the Dow lost 0.93% on Friday, the trans lost a substantial 2.21%.  And like the Dow, this came on elevated volume and caused a bearish stochastic crossover.  But - note that what stopped this tall red candle was the 200 day MA at 5069.  The last time this happened, the trans were actually up the next day.  And the previous two times before that, the trans spent no more than two days under the 200 MA before recovering.  So this chart seems to suggest that we might be in for some gains later this week.

Accuracy (daily calls):

Month right  wrong  no call  conditional  batting   Dow
                                          average  points trade

April   7      9      2                    .438
May    10      7      3           2        .632  
June    8      6      6           1        .600     632   +$330
July    9      0      4           1       1.000     737

     And the winner is...

Overall, the Sunday night picture is fairly gloomy.  I'm not really seeing much to be cheerful about in the charts, so I'm simply going to call Monday lower.  OK, gotta run - Monther Nature is delivering a rather impressive thunderstorm that's giving us some much needed rain, but I want to get this posted before something bad happens.  That's all she wrote.

ES Fantasy Trader

Tonight we cover last Thursday night's short trade at 1351.50 for a handy 16.25 point profit.  I decided on Friday to hold 'em rather than getting out before the weekend as it looked like there was still more money to be made here with a favorable risk/reward ratio.  If the charts are looking so glum Sunday night, why not continue to hold?  First, we've already got a nice profit and I always hate to give back money on the off-chance I may be wrong about a continuation lower.  Second, I always say it's never good to be too greedy.  Third, I drew RTC's through the 5 minute and hourly charts and they seem to suggest that the Sunday night downtrend may be over for now.  At this point, there's really no need to continue to hold, so ka-ching, we ring the register.

Portfolio stats: the account now rises to $168,750 after 52 trades (41 wins, 11 losses) starting from $100,000 on 1/1/12.  Tonight we're standing aside, since we just exited a trade, contrary to the usual pattern of entering trades late at night.  Reminder - you can follow these trades live on Twitter @nightowltrader.  I won't flood your feed either - we're averaging just under two trades a week so far this year.

BOT    10    ES    false    SEP12 Futures     1351.50    USD    GLOBEX    01:15:49   

SLD    10    ES    false    SEP12 Futures     1367.75    USD    GLOBEX    JUL 20 00:43:10   

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.