9.5% Unemployment Rate

The Dow closed down 223 points ahead of the independance day long weekend as unemployment rate in the US turned in a better than expected 9.5%.

Eventhough the consensus for unemployment rate was 9.6%, a 9.5% number is still higher than last month. That, along with higher than expected loss of payroll jobs of 467,000 and the long weekend ahead was all the reasons investors need to sell out today in order to protect against an uncertain long weekend (see Stock Market Calendar).

On the technical front, the Dow failed right at its 30 days moving average short term resistance level to go back into the pullback scenario. Even though trading volume was low today, the steady short term bearish momentum did make a good follow up on the weekly evening star formed 2 weeks ago. Ever since the weekly evening star formation was formed 2 weeks ago on the Dow, it has fallen a total of about 274 points in a steady march towards its short term support level of 8000 points. Yes, as I have mentioned whole week long, this is an important pullback because how low it goes determines if this is a reversal or a continuation pattern. With the strong economic outlook right now, chances are that this is a reversal but as technicians, we would want to see that evidence show up on the charts rather than to speculate it.

Have a great long weekend!

ISM Continues To Recover...

The Dow gained marginally by 57 points as the ISM index missed estimated marginally at 44.8 vs 45.

The ISM index was again better than it was last month and continued to reinforce the economic recovery scenario. However, that did not stop investors from being cautious ahead of tomorrow's unemployment rate number and the long weekend that loomed ahead (see Stock Market Calendar). Trading volume remained low whole week long as nobody wants to be the hero. There are a lot of money on the sidelines, yes, but is worth nothing if nobody takes action. Unemployment rate is expected to hit a high of 9.6% this time round and investors clearly aren't willing to risk anything on that. With so much fear and resistance in the market, it is hard to see how the Dow can stage an upside breakout.

The Dow reversed its short term down trend into a short term neutral trend today as it continued to crawl just beneath its 30 days moving average. That line has been the support/resistance line for this intermediate term rally so far and it's still doing a good job of preventing the Dow from staging a breakout. In fact, this is a rare period of time where the long term and short term moving averages are cramped up almost all at one spot, suggesting that this is a point of decision. This is the point where the Dow must make a decision for the next intermediate leg. Be it up or down. From the market action so far these couple of weeks, downwards seems a lot more logical than upwards. Yes, we do need this intermediate pullback. If it does not go full length this time round, it will the next time round and stronger then. This intermediate pullback is necessary to determine if we are in a real bullish reversal or simply a continuation of the primary bear trend. Yes, history teaches us that bear markets can go on longer than this.

Dow Under Heavy Resistance

The Dow retreated 82 points today despite another round of economic data that continues to point towards economic recovery.

In fact, investors are expecting tomorrow's ISM index to show yet another better number of 45 (see Stock Market Calendar). So, why is the Dow still not rallying in the face of all these optimism? This is where the divide between economic outlook and market outlook is clear. Even with optimistic economic outlook, the stock market may not move correspondingly due to technical reasons. What technicals measure is the sentiments and behavior of investors, not the economic outlook. Even in times of great economic outlook, there will be pockets of pessimistic market outlooks, especially for the short term, due to fears of being overbought. Yes, there will come a time in every significant rally that the fear of losing the profits made so far outweighs the joy of more profits. That is when investors starts taking profit and ending rallies. The Dow is currently at that point in this intermediate term rally. This is also what is known as a technical pullback.

The Dow failed today right at its 30 days moving average, once again establishing it as a strong resistance level. A follow up tomorrow could lead to a visit to the 8000 points short term support level very quickly. For now, the Dow remains at short term bear trend, intermediate term bull trend and primary bear trend.

One Good Day...

The Dow gained 90 points today ahead of tomorrow's Chicago PMI number. Yes, this is not only a holiday shortened week but also a heavy weight week full of heavy weight numbers such as the ISM index on Wednesday and Job Report on Thursday (see Stock Market Calendar).

Investors are clearly expecting the optimistic numbers to continue into this round, hence the early buying. Are all these enough to change the technicals? Clearly not yet. The Dow has been stopped right at its 30days moving average line today which is short term resistance for the pullback scenario. Chances are slim that the Dow will find the strength to break upwards tomorrow no matter how the Chicago PMI turned out but if it does, it merely goes back into a short term Neutral trend with not clear strength to carry the intermediate term rally on much longer. If it fails and retreats tomorrow, short term support would be around the 8000 points level. The US market just isn't recovering like those of the BRIC nations, which are going almost straight up now. Not even the ETFs linked to BRIC nation indices are doing what the stock markets in those countries are doing.

For now, the Dow remains in short term bear trend, intermediate term bull trend and Primary Bear Trend.

Dow Continues Pullback...

The Dow ended down for a second week in a row this week, losing 1.19%.

Despite optimistic outlook and economic data this week, investors are selling into this widely anticipated technical pull back scenario, beating the Dow down everytime it takes a peek upwards. On the weekly charts, the Dow followed up on the evening star signal that was produced last week and with rising bearish momentum, the odds definitely favors the way down. Short term support is at about 8000 points.

For now, the Dow remains in short term bear trend, intermediate bull trend and primary bear trend.

Market Down Despite Optimistic Fed

As expected, optimistic comments from the Fed did nothing for the market as investors continue to sell into the pull back scenario. In fact, not even the better than expected durable goods order helped.

The Dow had a good early day run but was quickly beatened back to the reality of the pullback, closing down marginally by 23 points. It is pretty clear now that we are in a technical driven market and that looking out for where this pullback ends up is the most critical thing for this whole reversal scenario. So, how far down is good? As long as it does not make a new low, it is good. This pullback will tell us if the rally we had is a bullish reversal or just a Bear market rally. Again, I doubt if tomorrow's GDP number will help with continuing this intermediate bull trend due to reasons I cited yesterday (see stock market calendar).

For now, the Dow remains in short term bear trend, intermediate bull trend and primary bear trend.

Sideways Day Ahead of Fed...

The day before every FOMC announcement is usually a sideways day. The Dow made a sideways day down marginally by 16 points today. This is also a common occurrence following every large single day moves like the big breakdown we got yesterday.

The short term odds remain bearish as investors may be hesitant to react to anything good from the Fed tomorrow due to this technical retreat and may be more than willing to sell down this retreat even further. That's what technical analysis is really measuring, sentiments. It measures how investors are behaving despite what was being said on the news. Yes, we call that many differents names in technical analysis; Momentum, Support / Resistance etc etc but all these names mean only one thing, and that is what investors are feeling and doing at those prices. Yes, sentiments!

For now, the Dow remains in Short Term Bear Trend, Intermediate Bull Trend in a Primary Bear Trend.