At a crossroads

Last week featured some pretty volatile action in the Dow, including that awful Thursday dump. Tonight I want to put up the weekly YM Dow futures chart. You can see that we are now at a crossroads.

The RTC

We're sitting right now at the bottom edge of the rising regression trend channel that goes back to the end of August. This point is literally at the crossroads of a second descending RTC going back to February 21st.

The last time we were in such a situation was the last week of last November. Not only does the chart look similar, but the indicators are all in the same position as they were back then. That time, the decline was halted right around the same relative spot we find ourselves in now. Any further decline from here would make me short term bearish.

The VIX

So which is it? The VIX hit its upper weekly Bollinger band last week. Then it took a big fall on Friday after hitting its 200 day MA. The VIX always has trouble breaking above both of those. In addition, the VIX fell further on Friday proportionally than the Dow rose. My guess is that this was due to the terrible situation in Japan. It's difficult to get accurate news on the true situation there, but from what I can find out, it looks like, as bad as it is (and it is certainly a horrible tragedy) it's still not the actual end of the entire world just yet. It looks to me that the VIX has room to go lower this coming week and few incentives technically to go higher, implying higher stock prices.

Oil

Oil definitely put in at least a short term top on March 7th and has been declining ever since. The impact of the earthquake on oil isn't entirely clear, though my guess is that demand in Japan will fall at least until the damage to the infrastructure is repaired. And indeed oil in the overnight is headed lower right now and holding under $100 a barrel. Lower oil also implies higher stocks these days.

Futures

The Big Three (ES, NQ, and YM) are all negative right now (1:15 AM EDT) by just over a third of a percent. However, most of that came from a gap down at the open. The evening chart bottomed around 6:35 PM and has been rising since then. Also, they have now broken above their respective daily pivots, a bullish sign. And Friday's candles of both ES and YM look like hammers to me, a further bullish sign.

History

We are about to enter what The Stock Traders Almanac calls the "sweet spot" of March, historically the strongest period of the month. The Dow has gone up in 17 of the last 23 years on the Monday of triple witching. So history is on our side for tomorrow.

Numbers to watch tomorrow

12,056: The Dow's daily pivot on Friday. Breaking over this was bullish. That number now becomes support.  Watch the action around tomorrow's daily pivot.  That will be the key to the rest of the day.

12,000: The psychological support. Don't underestimate the importance of this round number. It has held off no fewer than three bearish assaults in the last 30 days.

12,060: What was support at the end of February is now resistance. Breaking above this would be bullish. We're only 16 points from there right now.

The play at the plate

Summing up all of the above observations, I see a lot of short term bullish factors, some decent support, and a lack of selling pressure. The fact that the world has had a whole weekend to assess the situation in Japan is helpful to the market too. And interestingly, although there was the usual finally 30 minute dip on Friday afternoon as the day traders headed out the door, there was not a wide scale panic for the exits.

So all in all, I'm actually expecting the market to end at least a bit higher tomorrow.