Profit taking possible Tuesday

I hope you all had a pleasant 4th of July and a nice break from the markets.  But now it's time to get back to work.  After last week's monster advance, I'd be tempted to go short at time point just on the principle of not being too greedy if nothing else.  Indeed, J-Trader's timing system (that I mentioned in my previous post) has apparently issued a short signal.

So let's start off with one of my favorite charts, the VIX. In this daily chart, you can see how the VIX hit its lower Bollinger band three days ago and has been dribbling down it ever since. It's now formed two consecutive hammers, and as we know, two hammers are better than one. With its indicators all oversold and having bounced off its recent 15.5 support area, I'd say the VIX looks more likely to go higher than lower at this point. Higher VIX implies lower stocks. If not tomorrow, then the next day.

Meanwhile, the Dow daily chart is definitely in overbought territory now and its short stochastic looks ready to execute a bearish crossover. Its momentum has also peaked and is headed lower. The Dow's daily pivot at 12,528 has also moved much closer to the last close at 12,583. A break below the pivot tomorrow would definitely be bearish. We could conceivably open below it for that matter.

Finally, not much guidance from the futures at 1 AM EDT. NQ and YM are up a bit and ES is down just 0.15%. Notably, the ES pivot is now 1332.25 and we just bounced off that level in the last five 5-minute candles. A break under this level before the open Tuesday morning will also be bearish.

This being a holiday-shortened week in which I think many of the big players will be on vacation, it's possible anything could happen, but right now things aren't looking too positive. Though I hesitate to actually put on my short hat just yet, I'm reaching for it and I'd definitely be looking to take any short-term profits tomorrow . In any case, I wouldn't be looking to be a buyer at these levels.