Bull case looking good for Monday and the week ahead

Dow weekly

Bulls vs. Bears

Last  Thursday night I was of two minds on the market's direction for Friday.  Given the crazy swings up til then, there was a chance that having been up big on Thursday, it would be down big on Friday.  That obviously didn't happen.  My other idea was that we'd see early gains evaporate as traders left for the sidelines not wanting to be long the market over the weekend.  Oddly enough that didn't happen either.

Friday we rallied 126 points and they did not knock 'em down into the close.  On a Friday afternoon?  Hmmm... That's one point for the bulls.  And this being the start of a new week, I brought up the Dow weekly chart here for your amusement.  Note the giant hammer formed last week  That's about as bullish as they get.  Score two for the bulls.  Note also the weekly volume going exponential as the Dow went down.  A classic sign of a washout low.  Bulls now up 3.

OK, so then I looked at the Dow weekly chart all the way back to 1987 for times where we had a big hammer that extended down from the lower Bollinger band and found 10 of these.  In all ten cases, the Dow was higher a week later.  Wow, another point for the bulls.

Incidentally, the weekly chart for the SPX is pretty much the same.  Even more significantly, SPX tested its 200 week moving average last week and the weekly support held.  Bulls 5, bears 0.

Also, all of the classical indicators for the Dow, ES, and SPX (RSI, momentum, stochastic, etc.) have now finally gotten up off the floor indicating that a bottom has been put in.  The bulls shoot, they scoooore.

The VIX

The VIX is such a great indicator, we have to check it out.  And here we see that the weekly VIX is just about the inverse of the Dow.  A bearish inverted hammerish gravestone doji there seems to portend a lower VIX this coming week. And this candle comes after an exponential run-up in the VIX that was more hyperbolic than parabolic.  And we all know how exponential moves always end in the market, right?

Lower VIX, higher stocks.  The bull case is on a rampage here, score now 7-zip.

The futures

By this point, I'm looking hard for a reason to get the bears back in the game and I'm not finding one.  The ES weekly hammer was even more impressive than the Dow's or the SPX's.  And I also note that ES traded entirely outside its descending regression trend channel on Friday, a bullish setup.  It would have to be down huge tomorrow, even more than any day last week, to go back in.  And right now at 12:45 AM EDT, ES is up three quarters of a percent at 1185.75.  NQ and YM are up about the same.  Indeed ES has no resistance from here clear to 1200.

So it's looking pretty good that tomorrow will provide the bullish trigger to Friday's setup.  (The Dow is in the same situation).  It's a blow-out for the bulls.

The bottom line

Add to this BTE news this evening out of Australia and Japan, plus a few bits and pieces of encouraging US economic news, plus the CME putting the kabosh on commodity margins, plus Obama keeping his yap shut about the market for a few days, plus the extreme negative consumer sentiment numbers I mentioned in my last post and it's sure looking to me like we have the makings of an up week ahead.

In fact, there's nothing here to suggest that tomorrow will be anything but up.  So on this Sunday night, I am pulling my long hat firmly down on my head.  The bulls throw a no-hitter.  That's all she wrote.