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| Up or down? We waffle. (Yum!) |
Well, turns out the market pretty much waffled all day too. First it was down, then it went up, then back down, then up, down, up, down, pass the maple syrup. Unfortunately, all this breakfast food didn't provide us with much more clarity tonight for Wednesday than we had last night. So let's line 'em up and see who salutes.
The bull case
1. After wandering about the daily Dow pivot of 11,412, we closed just under at 11,406 after a peek above that. I count that as support. 11,400 is also support from earlier this month.
2. Even with today's 77 point loss, the Dow remains clearly inside a new rising regression trend channel. No bearish setup here.
3. Today's volume on a down day was even lower than yesterday's up day. If this is a tide running out, it's not very persuasive.
4. Both ES and YM are now up in the overnight at 1:25 AM EDT, though admittedly not by much. ES, at 1194 has broken above its new daily pivot of 1192.17. That is key.
5. The Morningstar Market Fair Value index rose again today to 0.88, up for the fourth day in a row. A rising index corresponding to the expectation of rising stocks.
The bear case
1. Tomorrow, Wednesday is a funny day for the VIX and it's not looking good for the bulls. I've given this its own section below.
2. The Dow put in a hanging man candle. Due to its small size, I'd want to wait for confirmation on Wednesday that this is in fact a reversal, but it is on the face of it, bearish.
3. Seems that Nicky and Angela's date didn't go so well. I don't know if he didn't like the dinner or she didn't like the movie, but the markets sure didn't like the results. Zut alors!
4. The Dow's indicators are nearing overbought levels. RSI and the short stochastic in particular actually look to have topped.
5. J-Trader's model, which correctly went short for today, is holding short. After hitting something of a rough spot for the past few weeks, the model seems to be getting its bearings again (no pun intended - OK, well maybe a little one).
The VIX
There was an extremely interesting article last Friday in VIX and More here:VIX and More: The Convergence of VIX and VIX Futures at Expiration.
I quote in particular:
"Right now the market’s best guess is that the VIX will fall 1.90 points by Wednesday’s SOQ, but of course the final settlement could be between the two current values and quite possible above 36.40 or below 34.50."Now today (Tuesday) the VIX closed at 32.85. I will readily admit I'm still a beginner in the mechanics of VIX futures, but Wednesday is a VIX options and futures expiration day. So it's possible that much of the drop we saw in the VIX over the last three days was more a function of the VIX needing to get realigned with the futures than any underlying market strength. With the VIX putting in a doji today, there exists the possibility of it going higher tomorrow. Higher VIX, lower stocks.
In any case, the VIX bounced off its support just above 31.5 today, just as it did yesterday. And the VIX indicators are approaching oversold status.
The bottom line
Gosh, I think I'm going to have to have a second helping of waffles tonight. The bulls and bears seem pretty evenly matched right now. What I will say is that this is one of those nights where the pivots will be crucial.
On Wednesday morning, watch closely the ES pivot at 1190.42 and the Dow pivot (today's was 11,412, tomorrow's isn't out yet but should be close to this). Staying above these two numbers will be good for a higher close. Any decisive breach will bring out the bears.
If I had to take a wild guess right now, I'd reach for my short hat for Wednesday, but I really want to see those pivots first. If we are down tomorrow, that brings into question my earlier call for a higher close to the week. That's all, she wrote.
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