Very gloomy weekly outlook

With a fair number of good news items out late Thursday and the futures trending higher, I really thought there would be some follow-through on Friday to carry the market higher, despite charts that looked bearish.  Wow - was I ever wrong.  It looks like I am going to have to put my short hat on now simply because I had to eat my long hat.


Not that there isn't ample reason this Sunday evening to be gloomy for the upcoming week.  Check out the daily Dow chart here. This chart has the same markings I put down on June 12th showing four possible 200 MA intercept points. My guess back then was that we were headed for point C, being 11,819 three days from now. After last week's four day rally, it was looking like the intercept might not happen at all. Unfortunately, it now looks like we are right back on track for point C. And when we hit it, the market is going to go lower, probably to retest the March lows at 11,614. If that fails to hold, things could get really ugly.

Right now, the Dow has come off its overbought levels of last week but it still has lower to go before being anywhere near oversold. Of greater concern is that the selling volume has been increasing over the last three days. Also,the last week of June is historically a poor performer.

Next we see that the VIX executed a bullish engulfing pattern, which is generally a strong indicator that it is ready to go higher, and that is bad for stocks. Also, the VIX's indicators have all bottomed and its stochastic in particular has executed a bullish crossover. VIX higher, stocks lower.

Then we have Morningstar's Market Fair Value indicator, which remains at 0.95 and has been below 1.0 all month. We're not going to see a meaningful rally until that goes higher.

Add to this that all three futures I watch (ES, NQ, and YM) are down at the moment at 1 AM EDT by about a quarter of a percent, and the fact that last week's good news failed to inspire a rally as I had thought it might, and I'm not seeing much to drive this market higher tomorrow. I'm going to look for a lower close tomorrow, and quite possibly for the week as a whole. I was right 3 out of 5 times last week; let's see if I can do better this week.