Give it a rest
Technical analysis is a great tool and I use it all the time, but I'll admit that there are times when you need to give it a rest. I believe that tonight is one of those times. Technically, the daily Dow chart looks like it's rolling over again. Four nice up days, then a dark cloud cover and another down day today Not so hot. Then all the indicators have peaked at oversold levels and started heading lower. That's usually a bearish sign.
But not tonight. I am going to call tomorrow higher right here and now because I believe the market is now in one of its news-driven modes rather than its usual technical mode. And the news today is quite bullish. First we had the big oil dump which sent the price of crude lower. Next we're hearing positive noises about the EU and IMF concerning the Greek problem. And now we hear that the Premier of Communist China made comments in the Friday edition London's Financial Times to the effect that he's declaring victory over inflation.
The futures are definitely liking something right now, with all three in the green, and I'll bet this is what's driving them. ES in particular is up nearly six tenths of a percent at 1:30 AM. And at 1284.50, it is well above Friday's daily pivot of 1271.58.
Now I'll admit that today's Dow candle could be taken either as a hanging man if you consider it as a termination of our earlier four day winning streak, or a hammer, if you take it as a reversal of yesterday's losing session. I'm leaning more to the hammer theory at this point.
Then the VIX put in one of these topsy-turvy days where it closed higher on a gap-up red candle. When the VIX has one of these gaps up in the middle of its Bollinger bands, it very often tends to resolve by filling the gap. If tomorrow holds true, then the VIX should go lower, and stocks higher.
Given all of this, I'd be nervous going into Friday with my short hat on. I'm three for four on market direction calls this week. Let's see if I can make it four out of five.
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