Monday lower

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

• Monday lower, low confidence.
  
• ES pivot 1583.92.  Holding below is bearish.
• Rest of week bias higher technically.
• Monthly outlook: bias lower.
• ES Fantasy Trader standing aside.

Recap

Whoa - Mr. Market is definitely off his thorazine and has clearly lost his tenuous grip on reality.  The fact that the economy is improving was enough to send the Dow into a tail spin last week.  We were up triple digits, we were down triple digits, up down up down.  Looks like we're back to the "good news is bad news" bizzaro world scenario we see so often on Wall St..  What the heck's going on here?

My dad was an awesome investor.  He definitely had the Midas touch.  He somehow always managed to buy low and sell high.  And he was a psychiatrist.   I'd ask him for the secret to his success and he's tell me that he would "psychoanalyze the market" like it was one of his patients.  Forget efficient market theory, we're after psychotic market theory here and someone's having a full-blown schizo attack right now.  Unfortunately, I never decided to go into medicine so all I can do tonight is psychoanalyze the charts.  Ach so, Mr. Market, vat seems to be ze problem?

The technicals (daily)

The Dow: On Friday, the Dow posted a 41 point gain after seeming like it would never rise again.  It wasn't much of a retracement but it was a classic spinning top warning of a bullish reversal.  This was perhaps made more impressive coming on a quadruple witching day.  Although the indicators are still not quite yet to oversold levels, being as we mostly traded below the lower BB on Friday I'm thinking this chart could be ready to rally on Monday.

The VIX:  And also on Friday, the VIX posted a long-legged doji that did indeed fall back below the upper BB, as I had expected, dropping 7.75%.  Of course, this does leave the door open to another move higher on Monday, so in the absence of an RTC and with the indicators kind of wandering about in no-man's land, I'm going to take a pass on this important chart tonight.  Could go either way.

Market index futures: Tonight all three futures are lower at 12:37 AM EDT with ES down by a non-trivial 0.41%.  Like a bunch of other charts, on Friday ES put in a doji closing below its lower BB.  That also drove RSI oversold but the stochastic, which is now getting down there too still isn't in position for a bullish crossover.  And with the negative follow-through in the overnight so far tending to non-confirm Friday's doji, we could see ES following the lower BB down again on Monday.

ES daily pivot: Tonight the pivot drops  from 1594.67  to 1583.92.  ES's move lower was enough to keep us below the new pivot even after that fall so this one remains bearish.

Dollar index: The developing evening star for the dollar did not pan out last Friday and instead of falling, the dollar gained another 0.51% to cap an impressive three day run.  But we're now officially overbought and just about up to the upper BB.  OTOH, the stochastic is not yet where I'd like to see it for a bearish reversal, so the dollar could continue to move at least a bit higher on Monday.

Euro: With another big drop on Friday, the euro is now showing a bearish three black crows pattern and is firmly in a steeply descending RTC.  And in the overnight, it's even lower, gapping down a big 0.33% so far in trading that's entirely below the lower BB.  The euro has now moved to within striking distance of its 200 day MA at 1.3071 and although RSI has now gone overbought, the stochastic isn't yet setting up a bullish crossover, so we could see more downside here on Monday.  I'd not be surprised to see the 200 MA tested.  And that would square with my view of a higher dollar.

Transportation: Diverging from the Dow on Friday, the trans dropped 0.52%, but also on a spinning top and also closing below the lower BB.lower BB for a day or two and that would temper my optimism for the Dow chart.


Accuracy (daily calls):

Month     right wrong  no call  conditional  batting   Dow
                                             average  points

January    5      7      6           3        0.533   -101
February   3      4      5           6        0.692    131
March      5      7      5           2        0.500    121 
April      7      5      5           3        0.667    328
May        3      4      6           4        0.636     85  
June       3      5      4           0        0.375    139

     And the winner is...

The guidance tonight seems to be mostly negative, the daily Dow chart notwithstanding.  And the weekly charts are even more so.  And this coming week is historically quite bearish.  And with no economic news coming out on Monday to throw a monkey wrench into the works, I'm going to go with what I see, and that's Monday lower.  But I think the big selling of last week is about done and we may see a move higher by Tuesday or Wednesday.

ES Fantasy Trader

Portfolio stats: the account remains at $108,250 after 13 trades (10 for 13 total, 5 for 5 longs, 5 for 8 short) starting from $100,000 on 1/1/13.  Tonight we stand aside for much the same reason as last Thursday - after nearly a half percent move in the overnight so far, I don't want to end up on the wrong side of this market by morning.