Make or Break

Last night I suggested that the Dow could still go higher today and while it wasn't looking too promising early on, we finally did manage to eke out an 8 point gain.  It's not much, but it is higher.  The problem with today's action was that it formed a long spindly doji, indicating considerable indecision as to market direction.  We are also still inside a descending regression trend channel that began on May 10th.  It will take at least two more days of gains like the last two days before we reach the right-hand edge and a bullish setup.

On the other hand, the Dow is only now just coming off its oversold indicators and they are nowhere near the point they were at the last three market tops this month.  That suggests that even if we continue in the monthlong downtrend, there's still room for some upside tomorrow.

The VIX tends to support this idea.  It put in a big red candle today to close at 16.09.  In fact the size of the decline suggests that the market should have gone higher today, so maybe it will tomorrow.  Is the VIX ready for a reversal?  Not just yet.  It has not support until the 15.5 level it hit on the 19th.  And then its lower Bollinger band is at 14.95, suggesting the VIX could easily go lower tomorrow, implying higher stocks.

And all three of the ES, NQ, and YM futures are up this evening (at 1:20 AM EDT), with ES up 0.17%.  Not a huge gain, but it still lends weight to the bullish thesis.  Then we have oil creeping higher in the overnight and as long as oil remains in a positive correlation with the market, this too is bullish for stocks.

And last but not least, the dollar did indeed go lower today as I suspected.  It did find support at its 40 day MA, but the tall red candle at the end of three earlier declines suggests that it has room to go lower tomorrow again.  And like the correlation with oil, the dollar is keyed to the market, only in an inverse correlation.  Dollar lower, stocks higher.

Finally, tomorrow is a Friday, the last Friday of the month, and also the Friday before Memorial Day.  Historically, that is a least slightly bullish.  Volume is likely to be light with many of the pros already packing up for the Hamptons or other Memorial Day weekend getaways.  So I'm not looking for any major swings, but the tea leaves do seem to favor the long side for Friday.  But it's kind of a make or break.  A down day tomorrow will cast doubt on next week too.

And my AKS trade is still cooking.  AKS popped nicely through its 200 day MA on increased volume for a 2.17% gain today and that is very bullish.  And so far no indicators are showing oversold and the weekly chart looks even stronger than the daily.  Good trading is knowing when to hold 'em and when to fold 'em.  We're going to hold AKS a while longer.