Monday big time lower

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

• Monday lower.
• ES pivot 1989.25  Holding below is bearish.
• Rest of week bias uncertain technically.
• Monthly outlook: bias lower.
• Single stock trader: VZ still not a swing trade buy.

Recap

Trouble ahead, trouble behind...

Well I guess there's not much I can say about Friday's collapse that hasn't already been said.  I sat  there watching the market go off the rails all afternoon like some rubber-necker gawking at a bad car crash. I had to scroll my Dow chart all the way back to 2008 to find the last similar incident of such a bad sell off - and that was in October '08 when Lehman Brothers collapsed.  Is the current state of things (which I gather is largely due to fears of Chinese book -cooking) really as bad as that was?  Let's take a look at the charts and see if we can sort some reality from the smoking wreckage and get a clue as to where Monday's going.

The technicals

Dow daily

The Dow:  Well now here's something you don't see every day:  In fact  this is something I've never seen in more than 10 years of doing this. Technically we had a bearish setup on a rising RTC exit last Wednesday as you can see from the chart.  Then on Thursday we got a confirming bearish trigger and finally on Friday we got the payoff in a 500 point plus dive.

But what's most concerning about this chart is the lower red line slightly increasing to the right that represents the lower line of a rising RTC that goes all the way back to the bottom of the Great Recession back in March of 2009.  Any breach of this line represents a bearish setup of that rising RTC. In other words the Dow has been rising more or less continuously ever since then. Any break of that line indicates the clear possibility that the long-running bull market ever since is now over. 

But in the short term at least we're looking at a market that has gone not just inverse parabolic but inverse hyperbolic.  Of course this may be exaggerated because last Friday was an options expiration day but still this is about is overdone as I've ever seen and that goes back to the Great Recession. So I've got to think there's a short-term reversal coming Real Soon Now.

VIX daily

The VIX:  And now here's something even more astonishing.  Check out this chart of the VIX.  It pretty much speaks for itself.  This one's headed straight to the moon, Alice.  Normally, I'd say it's more than ready to come crashing back down, but the past few days have been anything but ordinary.


Market index futures: Tonight, all three futures are wildly lower at 12:19 AM EDT with ES down an astounding  2.28%!  I have never ever seen a move of this magnitude in the overnight.  What the heck - did Martians just land in China or something??

ES daily pivot: Tonight the ES daily pivot crashes again from 2042.58 to 1989.25.  I believe this is the biggest one-day drop in the pivot I've ever seen and I've been doing this since 2003.  That leaves this indicator beyond bearish - it's just plain spooky.

Dollar index:  On Friday the dollar took its own impressive move with a huge one percent gap-down red candle that busted its 200 day MA.  That sent the indicators oversold but not overly so.  And jeez, this thing traded entirely below its lower BB.  But without a bullish stochastic crossover and no nearby support, I can't call it higher yet.

Euro:  And in perfect mirror image fashion, on Friday the euro broke up through its own 200 day MA for a four day winning streak to close at 1.1450, its highest since May 15th.  That sent the indicators overbought but they continue to rise and with a steep rising RTC in effect, there's no calling this lower.

Transportation:  The trans on Friday were pretty much a copy of the Dow, so everything I wrote there applies here too.

Accuracy: 

Month    right  wrong  no call  conditional  batting   Dow
                                             average  points
January    8      6       4           1       0.563    627
February   6      4       5           3       0.692    183
March      7      6       5           4       0.647    976
April      3      8       7           0       0.273      1
May        6      5       5           2       0.615    581
June       8      6       3           4       0.706    552
July      10      1       5           4       0.938   1212
August     7      1       1           2       0.900   1197

     And the winner is...

Earlier Sunday afternoon, I was all set to be writing about how Friday's action looked like a classic panic-driven washout and how the selling would be about exhausted.  But judging by the futures this evening, that's clearly not the case.  Apparently, a bunch of stops are getting triggered and they're all diving for the exits at once.  This is the sort of market that separates the Night Owls from the parakeets.  It pretty much defines what it means to take the heat, and it's getting pretty hot.  As for me, when the VIX went over 20, I stopped trading.  I think there's going to be a great buying opportunity soon, but it ain't gonna be on Monday.  This call is easy: Monday lower - much lower.

Single Stock Trader

VZ took a dive last Friday along with everything else in the market although it wasn't hurt as bad as most of the rest of the Dow.  We got an inverted hammer making that the second one in a row.   It was enough to drive the indicators extremely oversold and we're now looking at a waterfall inverse exponential pattern.  We also have strong multi-year support not too far away at 45.80 and then the lower BB 45.74 just below that .  It's still not quite my ideal setup as the stochastic has not yet formed a bullish crossover but it's pretty darn close so if the market is looking at all decent on Monday morning at the open I wouldn't be adverse to buying this here.  Unfortunately, that doesn't look like it's going to happen.