Rally possible next week, not necessarily tomorrow

Slim Pickens riding the bomb in Dr. Strangelove

 Yeeee hah!

As I read the latest shenanigans emanating from Washington regarding the debt ceiling, I am reminded of nothing so much as Slim Pickens riding his atomic bomb to oblivion in Dr. Strangelove.

This headlong rush to national suicide by what embarrassingly passes for our government these days is nothing short of appalling. And if the reports are to be believed, we now have the spectacle of Emperor Nerobama, the Empty Suit, walking out on negotiations today, late no doubt for his daily fiddle lesson. Note to all involved, both the Demicans and the Republicrats: grow up.

I am fed up with this and just about at the point where I simply want to sit entirely in cash until Doomsday on August 2nd. There is no way to make money in this sort of toxic, psychotic market environment.

That said, last night I was weakly bullish on today. It was looking pretty good for a while there, but the day ended up being a carbon copy of yesterday, with early gains evaporating, ending with a 54 point loss for the Dow. If there's anything positive about this, it's that it brought us closed to oversold than yesterday, with the short stochastic in particular very close to bottoming.

The VIX meanwhile is close to its recent upper range, though its upper Bollinger band at 22.93 is still over 2 points away. It's starting to look oversold, but there's no reversal pattern in the candles just yet.

And the dollar put in a doji suggesting the possibility that it might go higher tomorrow, which would be bearish for stocks.

On the other hand,  the pace of the decline in ES has been decelerating over the past three days and appears to be stopping right at the 50% Fibonacci retracement from the June bottom to the early July top.  This suggests a technical bottoming process in progress.

Finally, I note with great interest that J-Trader's buy/sell model has now given a "strong buy signal". His time frame appears to be on the order of a few days to two weeks. I'm a little surprised, but I'm not going to argue with that, given his trading record since I've been following it.

It does look like we're nearly oversold levels from which a rally is certainly possible, but I don't see the reversal on my charts for tomorrow. Maybe on Monday. But with the current insanity in the market, I guess anything's possible. As I said before, I'm getting ready to head for the exits if the clowns in Washington can't start acting like grown ups real soon.  It's just shameful.

Indecisive, but weakly bullish for Thursday

Yesterday's post was titled "Rally possible on Wednesday" and that's just what we got today.  It wasn't pretty though, with all the gains over by 10:30 AM and the rest of the day dribbling downhill.  But it was still good for 45 Dow points and I'll take 'em any way I can get 'em.

Tonight's call is a little harder.  We're between Bollinger bands and have no real clear guidance from the candlesticks right now.  One positive note is that the Dow respected its daily pivot at 12,544 this afternoon.  In addition, our friend the VIX was unable to make any headway above yesterday's high and ended making another hammer.  Also, the VIX indicators are now even more overbought than yesterday.  And the Dow indicators are approaching oversold levels, though not quite there yet.

The dollar meanwhile did indeed go lower today, as I called for last night.  While it too is in the middle of its Bollinger bands, its short stochastic suggests it still has room to fall some more tomorrow.  All of these factors are bullish for stocks, but not overwhelmingly so.

And while all three market futures are lower right now at 1:45 AM EDT, the ES indicators are now oversold.  We're at one of these points where the ES pivot will be critical tomorrow.  It's now at 1315.75, a bit more than 7 points above the current level.  If ES can break above that level in the rest of the overnight, or in early trading on Thursday, then we have a good chance to close higher.  Otherwise, look for lower.Same goes for the Dow daily pivot.

Interestingly, J-Trader's Buy/Sell model came close to going long this afternoon but not quite.  That pretty much sums up my feelings about the market for tomorrow.  I've still got my long hat on, but only because I can't find a real good reason to remove it right now.

Rally possible on Wednesday

Well for a while there I thought my call for a lower close today was going to go awry, but Ireland came to the rescue and they knocked 'em down into the close and saved my call for a down day.

So now what? I think the clue to tomorrow is in today's chart du jour: the daily VIX. After another gap up day that took us over the 200 MA, the VIX finished at 19.87 after topping just over 20 to form a hanging man. That is a reversal signal. Interestingly, I heard some talking head on CNBC a few days ago say that the market wasn't going higher until the VIX hit 20.  Today it hit 20 and backed off.

Supporting the idea of a lower VIX is its RSI, which entered overbought territory today. The RSI on the VIX is a pretty reliable indicator. Once it turns red, the VIX goes lower either the next day or the day after. Lower VIX, higher stocks.

I also note that J-Trader's buy-sell system issued a short cover today. J-Trader clearly has the hot hand lately and I'm loathe to call for a downside continuation in the face of this.

Then we note that the dollar index put in a classic dark cloud cover today, with all its indicators it overbought levels implying that it's going lower tomorrow. And we know that lately, lower dollar equals higher stocks.

Finally, all three market futures (ES, NQ, and YM) are up nearly a third of a percent at 1:20 AM EDT. And ES in particular is now above its daily pivot, now at 1309.75. Admittedly that happened because the pivot went lower, not because ES went higher. However, any time ES is above its pivot, that number becomes support.

The red trend arrow remains in place until I actually see a reversal, but the upshot is that I'm taking off my short hat and reaching for my long hat for tomorrow.

Sell-off not done yet

Last night was one of those no-brainer calls.  The market telegraphed today's 151 point plunge from a mile away.  And you know what?  It's not done yet.  All of the factors that were in play last night are still there: oversold indicators that have (finally) peaked, a hanging man confirmed by a long red candle, lower futures, renewed rumblings out of Europe about Greece, or now it's Italy, heck it's Greetaly, mama mia, rhe whole deal.

And the VIX, which I did not mention last night, has come alive, with a big gap up green candle to close at 18.39, bumping right up against its 200 day MA.  That puts it right in the middle of its Bollinger bands and with its indicators all still just coming off highly oversold levels, it's still got plenty of room to run.  Higher VIX, lower stocks.

I don't know where this one is stopping but I'm pretty sure the market tomorrow is going lower again.  I took out some SDS again today to hedge my long positions.

Going lower on Monday

Well my forecast last Thursday night for Friday proved wrong, although I still don't think there was much of a clue in the technicals that night to Friday's 62 point Dow decline.

But tonight, the picture seems a lot clearer.  With the both the Dow and the ES putting in hanging man candles last Friday and the Dow falling out of its 8 day long ascending regression trend channel, and all three futures down by around half a percent right now at 1:30 AM EDT, ES having fallen below its daily pivot, now at 1346.75, and J-Trader's system still holding a short signal, it's looking like a pretty good bet that we're going lower tomorrow.  Also, the indicators have now peaked and fallen out of the "overbought broken" status.  This indicates a trend end too.