10/21/2008: Thoughts for Tuesday

Key notes:

1. Daily VIX: the RSI is challenging bullish support and the line chart is approaching the 20 MA. Further, the stochs are nearing 50 and the MACD is crossing. It certainly appears that this is a reversal consistent with an intermediate rally in the markets.

2. Hourly VIX has the EMAs I have plotted crossing for the first time in a significant way. The 13 EMA actually closed under the 50 EMA. A significant indication that it may be rolling over. The RSI failed at bearish resistance and is now headed into what looks like bearish support. That indicates lower VIX prices - a positive sign for the markets. Stochastics are deep into the oversold territory - consistent with a failing price. Lastly, my CCI stochs did not even make it out of the oversold region before rolling over and flatlining again. Also observe the trendlines on the hourly.

Thus, the most significant factor today to me is the VIX movement. This is consistent with the termination of selling declines and the initiation of intermediate rallies.

3. SPY Hourly: SPY ran right up to its trendline on lightish volume. Its RSI is entering bearish resistance and will either stall here to go lower and consolidate, probably at 40 - 50 (most likely 50 due to its significance in this whole chart), or SPY will muscle up to one of the three black lines I have drawn (the fib clusters). It looks like the most obvious would be nearest to the red downtrend line I have drawn. So far the RSI patterns are not showing any price projections, but they may in the next pullback. That would be another confirmation for fib projections. I have only included a few fib measurements in this chart - a broader study may be needed soon. Hourly stochs found bullish support and are headed into resistance. The fact that they have not crossed leads me to believe that it is possible for the market to "umph" up into resistance before falling back.

The single most important factor in a pullback is to hold the bottom blue line on the hourly chart to keep the uptrend intact. Some would call this an ascending triangle, but I prefer to view ascending and descending triangles as continuation patterns. Instead, this looks like a symmetrical triangle or just a coiled spring ready to pop in either direction (which appears to be up at the current time).

4. SPY 30-min: Another potential target for a move up in the morning would be to the red line.

5. SPY 10-min: The floor pivots for tomorrow have tightened up. A pullback to S1 is not out of the question. The RSI once again pushed above bearish resistance and actually confirmed the bullish move by maintaining bullish areas in the RSI. Stochs have a similar pattern.

So what can we expect tomorrow? My guess, and it is just a guess, is either a gap higher into short-term resistance followed by a pullback, consolidation, and breakout over the next few days. Alternatively, we could see a pullback to S1 or even S2 and then consolidation. The important thing for the current pattern is the trendline along the bottom plus the VIX movement.