Europe Blowing Up

Europe is dragging down the world markets again.  Is this the Euro crisis, part 4?  We had part 1 in May-June 2010, part 2 in June-September 2011, part 3 in May-June 2012.  The DAX is near strong support around 9000-9025, so we are just above those levels.  It should bounce on this first visit.  On the next visit, I think the DAX 9000 support will crack, which will drag down the S&P with it.

Even though market is around flat, VIX August futures is underperforming, down -0.35, or 2.2%.  Usually VIX underperforming is a sign that the downside is mostly exhausted in the short term, as hedgers have already loaded up on VIX to protect against further downside.  That being said, we haven't had much of a bounce, the biggest dead cat bounce occurring Monday afternoon, since then, we haven't been able to crack ES 1925, which is price zone after the big 40 point down day last Thursday.  We are making lower highs and lower lows.

Along with the timing indicators from past pullbacks, I expect another swoon in the coming days. It should be within the next 3 trading sessions, so either Friday, Monday, or Tuesday.  On that down swoon, ES 1880 should be tested, and probably find loads of dip buyers waiting to gobble up shares.

It is too early to buy the dip, and a bit difficult to short considering the lack of obvious sell setups coming from an oversold bounce.  This market is not letting you in on the short side, which is quite the change of character.  Markets that don't bounce even when oversold usually end with a capitulation move lower.  Treacherous to go long this market, but still waiting for a better sell signal.  If we can bounce today back up to 1922, that would be a good area to initiate shorts for a move down to 1880-1885.