It REALLY Could Be Different This Time...

Crude oil staged the biggest 3 days drop since this crisis begun today; Money continue to pour into the equity market from the credit market, bringing bond yields higher across the board (see bond yield curve); The Dow staged the biggest 2 days gain since this correction begun in May. This time round, it could REALLY be different. Sentiments are recovering as crude oil breaks its strong uptrend trendline, ending the bull trend for now. So, does this mean that we are looking at the start of a Dow bull trend now? Not yet. Economic data continues to be lousy and this 2 days gain still fall within the framework of a bear trend relief rally. Until we see the Dow pull back and then fail to make a new low can we say that the bear trend has ended. For now, it can still go either way.

Stocks Fight Back!

Everytime oil takes a hit, stocks make a one day run for it. But oil have rebounded every single time in the past few months, taking stocks lower. In fact, stocks take an immediate dive the day following such a surge in the past few months. Is today any different? So far, this surge seems totally dependant on the drop in oil price just like those few times in the past. However, there are still no indications that crude oil price is ready to reverse into a bear trend. In fact, it is once again riding on its strong rising trend line. Everytime it touches this trend line in the past few months, it actually rebounds higher. Could it be different this time round like I mentioned yesterday? Could oil go into a tight neutral trend from here onwards? Maybe, but it is still too early to tell. The Dow is still in a strong bear trend and today's surge does nothing to change the prevailing trend but a strong bullish momentum has begun building up as indicated by our momentum indicators. This was what we did not see in the past few surges. In fact, the rising bond yield curve (see bond yield curve) also suggest a pour back into the equity market from the credit market. So, a real possibility lies today that this time might be different but it is still too early to tell.

Oil Shaking...

How do you tell if a price trend is shaking? One of the most reliable way is by observing the frequency of retreat. When a price is in a strong uptrend, it does not go straight up but rather go up and then retreat a little and then up again, making new highs with every upward movement, like a wave. But when that trend is shaky, the frequency of that retreat increases and the length of the upwards movement shortens. Eventually, such a trend stalemates into a neutral trend where every upward movement get matched almost immediately with an equal downwards movement and then a trend change occurs. I think this is what's happening with oil right now. Crude oil price went from retreating once every month since its uptrend begun back in February to retreating twice in a month right now. This is indication that the strong uptrend of crude oil price is now shaky even though it is still intact. Indeed, this shakiness was also confirmed by OPEC's forecast of a lower oil demand going forward. See what happens when everyone conserves energy?

Of course, it is going to take much more than just a single day retreat in crude oil price to turn the stock market around as inflation continue to be a concern. The PPI numbers (see economic calendar) released today indicated that inflation at the producer level is higher than expected, casting a shadow on tomorrow's CPI numbers. Adding to the pessimism is also a weaker than expected retail sales. It is going to take a huge retreat in crude oil price filtered down to lower prices at the pump and switch to make consumers spend like they used to again and bring light to the stock market. For now, the way ahead still looks gloomy with no signs of a reversal on the technical front even though the Dow is already in a deep oversold position.

This is certainly still a risky time to be going long on stocks and if you must, you might want to limit your risk using the Fiduciary Call options strategy.

Stock Market Axis of Evil

FUNDAMENTAL ANALYSIS
Regional banks joined the "Stock market axis of evil" led by crude oil today as some analysts predict the close down of at least 150 banks within the next 18 months. Effort led by the Treasury Secretary to rescue Freddie Mac and Fannie Mae only gave investors an excellent opportunity to bail out of those stocks, causing even more sell off ahead of the uncertain inflation numbers (see economic calendar). When pessimism reins, all positive factors will be met only with massive sell offs as the last of the bulls take the opportunity to bail out. As long as oil keep rising and banks keep shaking, this turmoil will go on.

TECHNICAL ANALYSIS
The bear trend of the Dow continues with no sign of even a relief rally. What looked like a strong enough opening to spur the start of a relief rally was met only with massive profit taking. This will go on...

Welcome To Inflation Week!

Yes, its inflation week again! All eyes would be on the Producer Price Index and Consumer Price Index this week (see economic calendar). Both numbers are expected to turn in higher due to the ever rising oil price. As long as the numbers do not suggest a slow down or reduction in inflation rate, stocks would continue to come under pressure as capital cost increase and consumption decrease. And yes, the numbers are not likely to turn in either way this week as oil rebounds as expected and continues its way higher (of course, the recent rise will not affect the inflation numbers this time round). On the technical front, the Dow continues to display weakness with no signs of a relief rally yet. Its going to be a long way down.

Oil and Commodities Strike Back!

As expected, oil did not turn down into a bear trend or even a significant correction but rather rebound like it did so many times over the past few months. Commodities joined the fray today as the basic materials and energy sector led the rally today. So, oil and commodities were up but the Dow was up as well, what's so bad about it? Well, the thing is, even though the Dow was up today, it merely formed a bearish continuation pattern which tells me that it is going lower over the next couple of days unless we see a strong follow up tomorrow. However, with the way oil is rebounding, I see a strong follow up as a remote possibility.

Stocks Surrenders All Gains...

FUNDAMENTAL ANALYSIS
Stocks surrendered all of yesterday's gains today as the Dow retreated 236.77 points on a day without economic data nor major earnings releases nor breaking news nor rising oil prices. This can only spell one thing... widespread pessimism. Investors took the opportunity to sell into the higher prices set up by yesterday's short rally and yes, certainly there are some out there who made a quick buck today. Yes, investor sentiment in the market is decidedly pessimistic. In fact, not even a 5 days rally can convince anyone that the market is reversing back into a bull trend. On a week like this where there are no major releases, oil could be the only thing that can swing the market. Surprisingly, even with yesterday's lower crude inventory number, oil didn't stage the rally everyone was expecting. Was investors way too busy shorting stocks? In fact, stock traders could have sold off today in response to the that crude oil number as the sell off accelerated after the number was released. They are certainly not going to wait until they see oil higher again before taking action. I suspect we should see the full effect of that number tomorrow and yes, it only made the rebounding off the trend line scenario I mentioned yesterday more possible.

TECHNICAL ANALYSIS
A sideways day in the Dow today. In fact, the Dow have been sideways for 8 trading days now, forming a slight rounded bottom pattern. Clearly, the Dow have found a short term support level at around 11250 with the Dow already grossly oversold on a short term basis. This level continues to be a high probability area for a short term relief rally with a ceiling at about 11750. Indeed, with such a strong bearish channel in place, a reversal into a full scale bull trend remains a remote possibility.