Dow Due To Pull Back As Stocks Head Lower
The Night Owl Trader | Dec 02, 2016 01:49AM ET
The Hoot
Actionable ideas for the busy trader delivered daily right up front
- Friday lower.
- ES pivot 2203.25. Holding below is bearish...
- Next week bias lower technically.
- Monthly outlook: bias higher.
- YM futures trader: no trade tonight.
Recap
We are now in a most peculiar period where the Dow has more or less been rising for a week while the SPX has mostly been falling for a week. I'm now glad I called Thursday as uncertain because this is very unusual and I'm not quite sure what to make of it.
Normally the Dow and SPX are very highly correlated. I haven't seen anything like this in the 12 years I've been doing this. Thursday continued the pattern with the Dow up 0.36% and the SPX down by almost exactly as much – 0.35%.
The technicals
The VIX: On Thursday the VIX confirmed Wednesday's bullish engulfing pattern with a 5.55% gain on a fat green spinning top. That sent the VIX overbought though the stochastic has yet to show any bearish inclinations. With the 200 day MA falling lower and a near test of it on Thursday, I'm thinking we might see a retest on Friday.
Market index futures: Thursday night, all three futures were lower at 12:42 AM EST with ES down 0.14%.
ES daily pivot: Thursday night the ES daily pivot fell again from 2203.25 to 2193.67. That still leaves ES below its new pivot so this indicator continues bearish.
Huh – the SPX is now clearly in a downtrend while the Dow remains in an uptrend. My daily market calls are for the Dow which I treat as a proxy for the broader market. But this correlation has inexplicably suddenly broken down. Right now the Dow seems to be the outlier since the VIX rose on a day the SPX was down - the expected outcome. But in any case with all three futures running lower in the overnight and everything either overbought or just coming off overbought I think the Dow is due to pull back so I'm going to take a chance and call Friday lower.
Get The News You Want
That's all she wrote. See you again Sunday night!
YM Futures Trader
No trade tonight.
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