Monday, April 14, 2014

Monday lower

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Monday lower, low confidence.
  • ES pivot 1817.00Holding below is bearish.
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias lower.
  • ES Fantasy Trader standing aside.

The selling simply continued on Friday as no one wanted to stay long the weekend with a weak-looking technical picture.  Someone on CNBC also mentioned tax selling.  I was thinking tax-loss selling, but that's supposed to happen in December.  Then I realized he meant people simply selling stocks to raise cash to pay their taxes.  Do people really  do that?  I mean wait til the last second to sell?    There maybe something to that as I went back and checked the week before April 15th.  Going back three years, yup sure enough, the market goes lower.  Something to think about next year.  Now things get complicated as we enter a holiday-shortened week.

The technicals

The Dow: Friday's action took the Dow down to and actually below its lower BB.  Indicators are now quite oversold though not extremely so.  We broke support at 16,066 and all that remains now is the hard number at 16K even.  The 200 day MA at 15,752 is coming into view as the ultimate backstop but I don't think we'll get there this week.  Still, there's no immediate reversal sign on this chart so it continues to look bearish.

The VIXOn the other hand, there is a reversal sign on the VIX.  On Friday the VIX gained 7.27% but did it on a gap-up spinning top to form 2/3 of a classic bearish evening star.  Reinforcing this is the fact that the VIX crossed its upper BB and even closed above it.  Once again I state that the VIX rarely spends more than a day or two above its upper BB before retreating.  Indicators are now quite overbought so it looks like a lower VIX is coming soon, though maybe not perhaps as soon as Monday.

Market index futures: Tonight, all three futures are lower at 12:28 AM EDT, with ES down by 0.15%.  ES, like the Dow put in two nasty down days to end last week.  And there seems to be no end in sight.  OBV is decidedly negative and continues to fall, and money flow has been decreasing since April 3rd.  And what was an incipient bullish stochastic crossover was short-circuited so while the indicators are now oversold, there's no sign of a turn-around.  The only ray of hope here is that the developing candle is looking like a spinning top reversal but it's generally poor practice to read too much into a half-baked candle.  ES also has no support until the round-number 1800 level, and then 1797.

ES daily pivot: Tonight the pivot tumbles again from 1839.42 to 1817.00. Even with this big drop we're still beneath the new pivot so this indicator remains bearish.  I was asked today by a reader about my use of the pivot.  There's a good introduction to pivots here:  This is a concept I can thank Dr. Steenbarger for s well as many other insights into the market.  I'm afraid my use of the pivot is pretty simple, some might say simplistic, but it works for me.

I really have just two basic rules.  Price moving above the pivot from below is a bullish sign, and vice-versa.  And the second rule is that you should watch out during a trending pattern for the stock or whatever to get too far extended from the pivot as that can signal a reversal.  I guess it's just a fancy way of saying "reversion to mean" but the pivot gives you a nice anchor for where that mean should be considered to be.

I also have what I call a "conditional forecast" that uses the ES pivot.  Sometimes if ES is close to its pivot in the wee hours of the night, I'll take a guess that the market will close in the direction of the pivot crossing if it makes one before mid-morning the next day.  So if we're above the pivot and stay above, that's bullish.  But if we break down under the pivot, the market will close lower.  It doesn't always work, but it works often enough to be useful.

Dollar index: The dollar on Friday posted a 0.09% gain on a red candle.  But that was enough toe just exit the descending RTC for a bullish setup, while driving RSI down to very oversold and leaving the stochastic on the floor flat as a pancake.  With support holding it looks like we have a hint of a reversal, but on that requires confirmation on Monday.

Euro: And on Friday the euro put in a classic doji star right at the top of Thursday's green marubozu after four straight days of gains.  The overnight is seeming to confirm this doji, trading sharply lower and creating a bearish stochastic crossover, and making Monday look like a loser for the euro.

Transportation: On Friday the trans pretty much reflected the Dow so the same comments apply here too - oversold but no immediate reversal in sight.


Month    right  wrong  no call  conditional  batting   Dow
                                             average  points

January    5      10      6           0       0.333
February   5       2      2           1       0.750    107

March     12       3      6           0       0.800    431
April      4       1      3           0       0.800    196

     And the winner is...

The SPX Hi-Lo indicator I use comes from and they're showing a reading of zero tonight which I'm pretty sure is wrong.  I think it's more like 35 which is still pretty low but frustratingly not low enough to be a major reversal sign.  Also the NYSE A/D line continues to put in lower highs and lower lows - a bearish sign.  And the Morningstar Market Fair Value Index has now fallen to 1.01, its lowest level since January 27th (on the way down) - and that wasn't the bottom back then either.  There's only a tiny smattering of hope in the charts tonight making me think we might see a reversal later this week but I don't think it's going to be Monday, hence I'm regrettably calling Monday lower.  I'll be happy to be proven wrong since I'm always net long.

ES Fantasy Trader

Portfolio stats:  the account remains at $105,625 after two trades in 2014, staring with $100,000.  We are now 2 for 2 total, 2 for 2 long, 0 for 0 short.  Tonight we stand aside.


  1. Thank you so much for the response on pivot points. Your articles are really good read that helps me see the big picture in the market for the trading day.

    Another good way to think of pivot points is like support and resistance, its a place where big money traders like to do business at. But for market direction the pivot point is a simple tool to use like you mentioned above.

    Thank you and please continue to keep the small investor in awareness.

    1. Oh yes, you know I thought afterwards that I should have mentioned that. It is amazing to watch how often prices will fall to the pivot and then bounce off, and vice-versa from below. Cearly this is programmed into the bots and it's a line that should be on every trader's charts. Thanks for reminding me.


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