Going lower Thursday

Last night I ordered another helping of waffles and I'm glad I did. The Dow just barely eked out a 4 point gain and the SPX was down 12 points on Wednesday. This sort of waffling, excuse me, consolidation, is indicative of a market wracked by indecision.

That's what happens when the bulls and bears are as evenly matched as they were last night  There aren't many clues on the Dow daily chart so tonight we're going back to the future, or more precisely the futures for some guidance.

The futures

ES daily

In a post yesterday on DanErics, he (or they, I'm not sure if "DanEric" is one guy or two) draws two lines in the sand: support at 1173 and resistance at 1220. I can't disagree with that, though personally I'd be happy to see ES just break over today's high of 1206.50.

Things were looking good in the wee hours early Wednesday morning until ES dipped below the daily pivot, 1190.42, right at noon.  Support held just below that but we were unable to make any further headway the rest of the day.

Unfortunately, it's looking like ES is headed lower. Here's the very interesting daily ES chart.  We have two completely different things going on. First, the candles are forming a classic symmetrical triangle (blue lines). The conventional wisdom is that 75% of the time, these things resolve in the direction of the trend, in this case, up.

But now look at the indicators. RSI (second row) is oversold and has actually peaked. The short stochastic (bottom row) is just about to execute a bearish crossover. And triangles do resolve to the opposite direction 25% of the time.

Either way, the resolution will come soon, possibly tomorrow (Thursday) or Friday. So which is it?  My inclination right now is that the break will be to the downside, based on two things: first, the fact that the real bodies of the candles in the triangle are in a downtrend, and second, the indicators are looking like they're ready to roll over.  In fact right now at 1:50 AM, ES has sunken to 1180.25, which is down a rather worrisome 0.8%.

The VIX

The VIX meanwhile has now entered oversold territory and even though it declined a bit to 31.58 today, that still leaves it right around its recent support line of 31.66.  And tonight I've started watching the VIX futures.  If the VIX holds a clue to market movement (and I believe it does), then the VIX futures hold the key to VIX movement.  And right now the VIX futures (VM V1-CF in eSignal) just put in a great big bullish engulfing pattern.  VIX futures up implies VIX up implies market down.

The bottom line

In a post today in Cobra's Market View (See blog list in sidebar), Cobra says "I don’t feel good about today’s market.".  I'm afraid I have to agree.  Today the Dow exited its ascending regression trend channel.  That's a bearish setup.  So given all of the above, it now appears that the bears' hand has suddenly gotten much stronger.  Consequently, I am putting on my short hat for Thursday.