Monday stock market forecast

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

• Monday uncertain.
• ES pivot 2076.08.  Holding above is bullish.
• Rest of week bias uncertain technically.
• Monthly outlook: bias higher.
• Single stock trader: VZ not a swing trade buy.

Recap

December 7th, 1941, a date which will live in infamy.

Ho ho ho!  Santa came early last Friday as the Dow rocketed up 370 points in a broad-based advance.  Is this the start of the fabled Santa Claus rally or are there some lumps of coal in the pipeline?  Let's check the charts for whither Monday.

The technicals

The Dow:  Last Thursday night the Dow was looking decidedly negative after having fallen right through its 200 day MA to drive the indicators all oversold. But what a difference a day makes - because on Friday it put in a giant green marubozu that popped right back up through the same MA and then some causing the indicators to all bottom at oversold and also gave us a new bullish stochastic crossover. So right now this chart looks pretty bullish.

The VIX: I often write that the upper BB is the third rail of the VIX. And that proved to be true once again on Friday at as the VIX. fell a giant 18% after just touching its upper BB at 19.46 on Thursday. This move was enough to drive all the indicators lower just before they reached overbought and also just barely squeaked out a brand new bearish stochastic crossover. This tall red marubozu also crashed right through the 200 day MA making this chart look nothing but bearish for Monday.

Market index futures: Tonight, all three futures are lower at 1:11 AM EST with ES down 0.07%. On Friday, ES confirmed its successful test of its 200 day MA on Thursday with a giant green candle that retraced all of Thursday's losses and then some . That caused the indicators to stop falling off of overbought and also caused a fresh bullish stochastic crossover before ever reaching oversold levels. However that also placed it right back in a two week-long congestion zone and after such a large one day move it would not be unreasonable to expect a day of rest for ES. Indeed the move lower in the Sunday overnight seems to support that idea.

ES daily pivot: Tonight the ES daily pivot rises from 2062.17 to 2076.08. That still leaves ES above its new pivot so this indicator continues bullish.

Dollar index:   After its biggest fall since the Middle Ages on Thursday, the dollar recovered in decent fashion on Friday with a 0.73% increase for a classic doji star. That caused the indicators to bottom at oversold and makes it look like there is at least the possibility of moving higher again on Monday.

Euro:  And similarly after a moonshot on Thursday the euro retreated a bit on Friday as one might expect,closing back down to 1.0875. But even that move begs more replacement and the overnight is continuing lower again as indicators are now all overbought and the stochastic is starting to come around for a bearish crossover. My vote would be for another lower close on Monday here.

Transportation:  The trans had a good day on Friday just like everything else though not quite as good as the Dow. But it did bounce off its lower BB with a green hammer and that's a bullish sign. The indicators now appear to have bottomed at oversold and are just starting to come off that level. And the stochastic is now preparing for a bullish crossover so overall this chart looks more bullish than bearish for Monday.

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    10      2       3           2       0.857   2314
September  7      4       8           1       0.667   1404
October    7      7       5           1       0.533    538 
November   4      6       4           2       0.500   -350 December   2      0       2           0       1.000    538



     And the winner is...

Friday's big move brought the market right back to earlier resistance levels.  It's also not unusual for the market to take a break after a big one day move.  Also, while the charts are bullish, the overnight futures are not.  And it's always particularly difficult to call Mondays.  I'm not expecting any big moves on Monday either.  So I'm just going to call Monday uncertain.

Single Stock Trader

Last Friday Verizon was as surprising as everything else in the market gaining two and a half percent after looking pretty bearish Thursday night. That confirmed Thursday's fat spinning top as it bounced off the lower BB and squeaked out a new bullish stochastic crossover. In fact Verizon had its best day since February 6th. This move left it just short of its upper BB and right on month-long resistance. So it's not clear if there is all that much gas left in the tank to move significantly higher on Monday.

Weekend reading

For your reading pleasure, here is some entertainment while we're waiting for the market to reopen next week.


 How to put out Greece fires

Here's a truly excellent analysis from Stratfor that explains the whole Greek problem in some pretty stark terms: Preparing for Greece's Failure.  It's a video, and while I normally would rather read than watch some talking head read to me, Peter Zeihan manages to present a clear, concise analysis in a succinct 3 minutes and 41 seconds.  This video gets 4 hoots up from the Night Owl.

And along the same lines, here's a brief excerpt from this week's Wells Fargo Weekly Economic Commentary:

"Will the ECB Cut Rates?
After implementing two 25-bps rate hikes earlier this year, the ECB appeared to have moved to an “easing bias” at its September policy meeting. We had been expecting the ECB to cut rates by 25 bps on Thursday until the “flash” estimate of CPI inflation printed much higher than expected. (Preliminary data showed that the overall rate of CPI inflation rose from 2.5 percent in August to 3.0 percent in September.) It may be difficult for the inflation-phobic ECB to sanction a rate cut if the current rate of inflation is 3.0 percent.

However, the pace of economic activity in the overall euro area is very weak, and the ongoing sovereign debt crisis poses significant downside risks to the Eurozone. Moreover, some European banks are having difficulty securing financing due to concerns about their balance sheets. Therefore, we look for the ECB to announce that it will allow banks to tap its liquidity financing operations for longer periods. We also think that the ECB will eventually cut rates. Although we do not rule out a rate cut at the October 6 policy meeting, we believe that the ECB will want to see inflation receding again before it takes that step."

The Night Owl believes that there will be no recovery in the US until the Europeans get their act in gear.

Kodak's Death Throes

 This Greek tragedy of a company is now entering the final act, complete with wailing chorus.  Turns our my obituary last Sunday called "The Rise and Fall of Eastman Kodak" here has become my all-time number one hit.  Talk about perfect timing.  Just before I wrote that piece, Kodak closed last week at $2.38.  It closed yesterday at $0.78.  You can buy a tank of gas or 100 shares of EK now.  Same price.

Now consigned to pink sheet hell, the bottom feeders are already all over this one.  Yes, had you bought Kodak at its Friday low of 54 cents and sold at the close, you would have had a 20% profit in 90 minutes.  Some people are buying it now simply on the theory that it can't go much lower so it has to go higher (no it doesn't).

Jim Jones Kool-Aid Korner

Don't drink the Kool-Aid

And if you're not already depressed enough, check out this blog post from MISH'S
Global Economic Trend Analysis: FICO Survey: “Sharp and Deep Turn to Pessimism” on Housing, Credit Card Lending, Auto and Student Loans.  I quote:

"According to the survey, 73% of bank risk managers expect mortgage foreclosure to rise in the next 5 years and 49% predict housing prices won't return to 2007 levels until 2020, at the earliest."

As Count Floyd used to say on Second City TV, "Scary stuff, eh kids?"

That's all she wrote.

Weekend ramblings

Weekend reading

If you're just a tad confused about what Uncle Ben was talking about yesterday, so am I. The absolute best explanation I've read of what Bernanke said (or more to the point, didn't say) on Friday is this piece by Bruce Krasting over on zerohedge.com.  It's right on the money and the Night Owl give it four hoots up.  As they say down at the Public Library, check it out.

Last Sunday, August 21st, I wrote a piece called War With China that was fairly well read.  Three days later, a piece appeared over on marketwatch.com called Is the market forecasting war?  Hmmm...

Google Trends

And speaking of World War III take a look at this search term graph from Google Trends:  And what term did I search for?  "War with China"!  This term wasn't even on the radar until 2008.  It began perking in 2009 and has been running at about 5 times the average level ever since, with one big spike to over 10x normal in mid-2010 that Google chose not to annotate for some reason.

Know your enemy

And while we're at it, does anyone remember this iconic image?  At first glance, it looks like nothing more than a wallpaper pattern.  It isn't.  It was those 2,008 Chinese drummers pounding away in perfect clockwork synchronization during the opening ceremonies of the 2008 Olympics in Peking.

No doubt meant to be an "oooh, ahhh" moment by the organizers (or maybe it wasn't), but it just gave me the willies.  None of those guys looked  happy.  What do you think?

Two more interesting articles for the student of history: this one seems to have been forgotten in today's Short Attention Span society but it's important: China shoots down satellite.  Way back in 2007, China demonstrated to the world its ability to shoot down satellites orbiting the earth.  Gosh, I wonder why they'd need to be able to do that?

And this item is just a few weeks old: China's first aircraft carrier 'starts sea trials' That's right, the Peoples' Liberation Army (or I guess in this case, Navy) needs an aircraft carrier to, to, um, just why do they need an aircraft carrier?

So do I think WWIII is really coming?  Gosh, I hope not.  Maybe, eventually.  I don't think it will involve duking it out with nukes though.  It will be more of a cyber-socio-economic kind of war.  Every new great war differs substantially from its predecessor.  This one should be no different.

Executive Summary

From world war we move on to class war.  Not rich vs. poor.  This one is workers vs. management (which I guess amounts to the same thing).  Actually, this is just a funny story, not an executive summary  Back in the days when I worked for a big tech company, management decided to install a  fancy new video projector for the conference room.  They left the actual setup of this device to us techie types.

We carefully opened the box and unpacked it.  The first thing we pulled out was a remote control.  This looked like it had once been part of the console for a nuclear reactor or perhaps the space shuttle, had the space shuttle been invented back then.  It just bristled with buttons of various sizes, colors and shapes.  Suffice it to say we were mightily impressed.  Then someone said, "Hey wait, there's another remote in here".  We all took a look but this time we were just puzzled.

This other remote had only two buttons on it.  On for power, and the other for volume up and down.  We roundly scorned this useless sad button-impoverished excuse for a remote and wondered what kind of idiot would want to use it.  Then we came across the installation manual.  And right there in the parts list, under "master remote control", we got our answer.

The kiddie remote was called the "Executive Remote Control".  I kid you not.  We laughed about that for months.  It became something of a standing joke.  And the funny part is that the executives loved it.  Fortunately, I was never called on to hand over the "Executive Remote" to a visiting executive before his presentation.  I don't think I could have done it with a straight face.  So that's why I don't call my "quick overview" the "Executive Summary".  Ain't that a hoot?

Have a great weekend and stay out of Irene's way.