Now looking for higher

Last night's post was titled "Looking for lower" and boy we got lower today, to the tune of a 117 point dump in the Dow.  The good news is that today's close at 12,263 actually represents a successful test of the support level at 12,250.  In addition, the Dow indicators have now all gone from way overbought to the edge of the oversold area.

And go back to yesterday's post for my comments on oil.  Look again at the bearish engulfing pattern.  That is one of the most reliable candlestick patterns out there.  And sure enough, oil was down big today, falling below 107.

Now after today's big drop is it possible to still go lower tomorrow?  Sure, except for two things.  First, while the VIX gapped up at the open today, it ended up in fact putting in a red candle.  It remains stuck in the 16-18 region it's been stuck in for the last 10 sessions.  I don't see much fuel in the VIX chart pushing it higher right now.

And tonight all three futures are up by better than four tenths of a percent (at 1:30 AM EDT), and that is definitely non-trivial.  In fact, all of the indicators for the ES have now traveled completely from very overbought to very oversold, even more than the Dow indicators.  The RSI has actually bottomed and the short stochastic is ready to execute a bullish crossover.  And the ES bounced off its 40 day MA at 1307, also a bullish sign.

So there you have it: the specter of sky high oil prices draining cash from the economy abated (at least for now - I wouldn't be surprised to see the advance resume later this spring), at least some mumblings about a resolution to the Libya problem, no new sever damage from the latest Japan earthquake, the VIX stuck in the doldrums and the futures guiding higher.

Put it all together and whereas last night at this time I was moderately pessimistic, tonight I am moderately optimistic.  I'm still leaving the red trend arrow in place because we haven't seen an upturn yet, but I would not be surprised to see tomorrow close higher.

No trades today.