Bias lower but way too uncertain to call Friday

The bottom line

Remember, I'm giving a quick "executive summary" right up front in each post now. If you want to know why I'm making these calls, read on.  Hey, read on anyway - it's fun.  Otherwise, here's all you need to know:

The technicals strongly suggest a lower close on Friday. But everything will depend on what Uncle Ben says.  There's really no way to make an informed call tonight.

Things are looking a bit more optimistic for next week.  The monthly outlook remains poor.

Recommendation: Do not trade ahead of Bernanke.  We want to ride on the bus, not lie down in front of it.

Why calculus is harder than the market

Back when I took calculus (about a million years ago), it was not enough to get the right answer on a test.  You had to have the right reason too.  In fact you got more credit for having the right reason and the wrong answer than the other way around. Fortunately, the stock market works exactly the opposite.  In the market, there is no credit for your reasoning, all that matters is having the right answer.

And so it was last night.  I thought we'd be down today because Steve Jobs quit.  Well we were indeed down, but it had more to do with rotten jobless numbers and fresh shenanigans on the Dax over in Europe.  Which explains why my other idea, that we'd recover as the day wore on, was wrong.  I'll bet also that people were pricing in disappointment over Uncle Ben's not-yet-issued pronouncement tomorrow.

To QE3 or not QE3, that is a heck of a question

I've actually rarely seen such widespread disagreement over an upcoming event.  I read a bunch of blogs and it seems that everyone has a different opinion of what Bernanke will say tomorrow.  So I might as well join in the fray.  Is QE3 coming?  I'm pretty sure Ben will announce something to prop up the market, in the form of QE or otherwise.  Considering that we seem to be teetering on the brink again, he doesn't have the luxury of sitting back and hoping things will just work themselves out.

But I don't think he'll announce it tomorrow.  And whatever he does say tomorrow, I'm willing to bet the markets aren't going to like it, given the nervous mood on the Street lately.  Unless perhaps he brings out President Obama who will tender his resignation on the spot.  And I'm pretty sure that isn't happening either.

The charts

Technically, all the charts look the same tonight.  I checked the Dow, the Nasdaq, the SPX and the SPY and at least they do all agree.  They all have a bearish engulfing pattern going on.  This is one of the strongest bearish patterns in the candlestick lexicon.

The VIX meanwhile put in a huge bullish engulfing pattern.  This coupled with a hammer the VIX futures put in strongly suggests the VIX going higher Friday.  Another point for the bear case.

The only factor in favor of the bulls right now at 1:35 AM is that all three market futures are now up around half a percent.  But ES is bobbing around like a cork in a hurricane - quite unusual for this normally sleepy time of night.  So I'm not even sure how much to read into it.

But again, none of this will matter a hoot (a Night Owl specialty) if Bernanke delivers some sort of Christmas in August surprise.  So tonight it's all pretty much just hunker down in your hurricane shelter and wait and see.  That's all she wrote.


News Flash: Bill Clinton Becomes a Vegan

Wait - that's not quite all she wrote.  Wonderful news tonight.  I just heard on TV that Bill Clinton has become a Vegan.  I know it's hard to believe, but if that's what it takes to get rid of this guy, then that's fine with me.  Vega, of course is the second brightest star in the northern hemisphere and a mere 25 light years from Earth.  I wish him well on his journey and hope they have dry cleaners in the Vegan solar system.  Oh and say, could you please take Obama with you?  Hasta la vista, ba-by.

ES Fantasy Trader

Oh, and another thing.  I'm not touching this one with a 25 light year pole.  Tonight I'm taking my own advice and I'm not even betting Obamabux on tomorrow's action.  See ya!