Tuesday, December 17, 2013

Since summer, bulls and bears have been locked in a duel that looks like a draw at this point. That could change, however, if DXY dips below the red line at 79.65, a midpoint Hidden Pivot support that is crucial to the short-term (or possibly longer) outlook.  A decisive breach would augur more downside to at least 77.81, an event that would generate additional, impulsive downforce by exceeding yet another important low key at 78.10.

We've been demanding that bulls prove their case each step of the way, so yesterday's stall three ticks beneath the red-line resistance -- a midpoint Hidden Pivot at 1252.00 -- wasn't quite the impressive demonstration we were looking for. The good guys will have another chance to prove their mettle today, but let's stipulate that the futures must close above 1252.00, or trade more than $2.50 above it intraday, before we infer that a run-up to at least 1280.70 is likely.

The futures failed to get airborne after embarking on phase 2 of yesterday's short-squeeze, but the impulse leg itself was still intact and presumably waiting to be 'actualized' when the day ended. If this happens it will probably be over before it begins, perhaps by way of a short-squeeze that leaves traders choking on dust at the opening bell. However, night owls might be able to catch a ride with a 'camouflage' entry. The most useful 'external' peak available for this purpose is the one at 1780.50 high that I've labeled.  Any b-c pullback from just above it (i.e., 2-3 ticks) would be just the ticket.

With the New Year just weeks away, I'm as curious as the next guy about whether the Dow will soar, slither or slump in 2014 . For the moment, it has taken a breather after impaling the 16087 midpoint resistance shown. The overshoot may look minuscule, but it's actually 88 points -- probably enough for us to infer that bulls have the moxie to eventually push this vehicle to the midpoint's D sibling, 17622. It also implies that a retracement to the green line, which lies 565 points beneath current levels and  855 points off the all-time high, should be regarded not as threatening, but as a potential buying opportunity. This very bullish assessment is purely mechanical and goes sharply against my gut feeling that there are too many negatives weighing on stocks, the huge cost of Obamacare chief among them, for the stock market to make much headway. When there are conflicts or doubts in my outlook, however, I have learned to trust my bland technical indicators over mere facts and logic. In any event, we'll wait and see how energetically the Indoos attack the red line, assuming they do so at all. Of course, if rumors prove true that no Tapeworm will be announced as a result of the Fed's most recent meeting, the red line could be chop suey by midweek.