Actionable ideas for the busy trader delivered daily right up front
- Tuesday lower.
- ES pivot 1972.08 Holding below is bearish.
- Rest of week bias uncertain technically.
- Monthly outlook: bias lower.
- Single stock trader: VZ not a swing trade buy.
They knocked 'em lower into the close to end August on a down note. It made for some interesting candles so we'll get to them in a moment as we begin a brand new month. But first I want to mention something interesting I saw in the Stock Trader's Almanac - the DF/DM warning (not to be confused with KMFDM which is a really awesome industrial band). There's something interesting in there which I will discuss at the bottom of this post. I encourage you to check it out.
The Dow: Last night we had a reversal warning in the form of a doji star on Friday but I wasn't ready to call it lower just yet because it required confirmation. On Monday we got that confirmation in the form of the 115 point decline in the Dow. This was also just enough to drop it outside of its latest admittedly short but steep rising RTC, and that is a bearish setup. The indicators are still short of overbought but with a confirmation of the bearish star this chart looks lower again.
The VIX: Last night I noted the possibility that the VIX might be ready to move higher in a few days. It didn't even take that long as it rose over 9% on Monday confirming Friday's inverted hammer. Momentum has now started moving higher again and the stochastic is almost down to oversold levels and preparing for a bullish crossover. Monday's action also traded entirely outside the latest descending RTC for a bullish setup. So over all this chart looks like it has more upside left for Tuesday.
Market index futures: Tonight, all three futures are lower at 12:26 AM EDT with ES down 1.42%. On Monday ES handily confirmed Friday's doji star with a red candle that retraced half of Friday's gains. The indicators have now stalled halfway between oversold and overbought, and the stochastic is curving around nicely for a bearish crossover. I will note too that OBV began falling two days ago. With the overnight guiding strongly lower this chart definitely looks lower on Tuesday.
ES daily pivot: Tonight the ES daily pivot falls again from 1983.25 to 1972.08. ES remains well below that level and so tonight this indicator turns back to bearish.
Dollar index: On Monday the dollar retraced half of Friday's gains dropping 0.3% on an inverted hammer. Indicators are now almost up to overbought and the stochastic is starting to curve around for a bearish crossover. This was also just enough to exit the latest rising RTC for a bearish setup. So overall this chart looks bearish for Tuesday.
Euro: Similarly on Monday the euro retraced most of Friday's losses too close right back up to 1.12 for 7. That was also just enough to place it on the edge of its descending RTC for a bullish set up. The stochastic is also beginning to curve around for a bullish crossover and the overnight seems to be guiding hire again all of which makes it look like euro will move still higher on Tuesday.
Transportation: So much for Friday's outperformance. On Monday the trans dropped 0.8%. It definitely looks now like the trans have run out of gas and their latest rising RTC is over. That's a bearish setup. Momentum and money flow have already started moving lower though RSI continues to climb slightly. The stochastic looks like it's curving around to begin a bearish crossover although it's still not really quite all that over bought. But the overall gestalt of this chart is that it looks bearish.
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 10 2 3 2 0.857 2314
And the winner is...
Tonight we got a bunch of reversal warnings in the form of RTC exits and those are usually pretty good. Add in futures that are guiding non-trivially lower and although the first of most months is historically bullish I'm afraid I'm going to have to call Tuesday lower. I'll be happy to be proven wrong.
In The Stock Trader's Almanac they talk about the DF/DM warning, that is "down Friday / down Monday". It refers to instances where the Dow closes lower on a given Friday and then again on the following Monday. Apparently the average total number of DF/DM days in a year going back to 1995 is 10. And it seems that in years that have larger than average DF/DM counts the market subsequently moves lower. Notable examples include 2001-2002 where this warning hit 13 and 18 respectively, and in 2008 when it hit 15. So where does this leave DF/DM this year? Drum roll please... The answer is 9 so far. And the year is only two thirds over. So it looks like DF/DM in 2015 will probably end up above average. And that bodes ill for next year. Add in the monthly rising RTC exits we've gotten for the Dow and it ain't looking good, folks. Just sayin'.
Single Stock Trader
Last night I said that Verizon "may in fact may be getting ready to move lower in the next few days" and that's just what it did on Monday. We now have three reversal candles in a row : the lopsided spinning top on Monday following a doji star on Friday and a fat spinning top Thursday. Monday's candle also fell out of a short but steep rising RTC and the stochastic is flattening out for a bearish crossover. So even though the indicators are not yet overbought this one looks like it has more downside risk than upside potential at this point.