I was really curious to see how the futures would act when trading resumed this evening. As expected, they gapped down on the open. Then something unexpected happened - they reversed and started climbing. And right now (1:30 AM EST) all three futures (ES, NQ, and YM) are actually positive, with the ES actually up a respectable 0.14%. In fact the ES is forming a nice hammer, and the up volume is quite extraordinary - much higher than last Friday. This all makes me believe that the market is not going to be spooked by the events in Egypt. For more clues on where we may be headed in the near term, let's look at the weekly VIX.Last week of course the VIX continued the rise it began two weeks ago. But it looks like it ended up forming a hanging man and it was unable to break out above its descending RTC channel as you can see in this weekly chart.
Zooming in to the daily VIX, we can see how last Friday's big pop took it right up to its upper Bollinger band. Over the last two years, every time this has happened, the VIX came back down either the next day or no more than two days. The one exception was back in May of last year when all the European debt business broke.
So right now, I'm a bit more optimistic about tomorrow than I was on Friday. I don't think we're going to attack the 12K level again right away, but I also don't see another big down day on Monday. Also, there's some news on personal spending for December coming out. Although expectations are higher, it wouldn't surprise me to see the numbers met or even beaten, judging by what I personally observed in stores last month. We'll see.
I was ready to short some ES this evening as insurance against tomorrow. Now I'm just going to wait and see. Tomorrow's action will determine if we're going to start a new trend or not.