US Stocks Crumbles On Renewed Inflation Worries!
FUNDAMENTAL ANALYSIS
The stock market took all of us by surprise yesterday. It felt like our travel bus has just been car-jacked just a stop from our travel destination. Just when the market is picking up on all the fantastic earnings coming in these 2 days and the great economic data, existing home sales reported a "larger than expected" decline. This, again sparked new worries on whether the housing sector is indeed coming to a soft landing as billions of dollars are at stake there along with billions in mortgage and whether the Feds would cut interest rates soon. The US treasury's benchmark 10 years note also rose to 5 months high, breaking the 4.8% barrier. This further encouraged exit from the equity market in favor of the bonds market. Yesterday saw the hardest one day fall of 2007 so far and it all happened so fast that it caught all of us by surprise. So, if this is happening despite as the great releases so far, then there is little fundamentals we can fall back on to look into the future... let's go technical...
TECHNICAL ANALYSIS
Talking about a hard hard fall. My mentor used to tell me that the bulls take the stairs and the bears jump off the windows... that was what we witnessed yesterday. The Bears took out in one day what the bulls built in 2 days. Both the Dow and the Nasdaq composite are back down to their respective 30 days MA and 50days MA support level. The candlesticks are showing a bearish engulf formation which indicates a strong and sudden shift of investor sentiment from bullish to bearish. All momentum indicators also showed a sharp reversal of momentum to downside. So, are we still safe? Yes, but we are certainly at the edge of the cliff once again. The Dow is still riding above its strong 30 days MA support level and many times, it has bounced off this level after strong sell-offs like we saw yesterday. One example would be the 1.29% sell-off on 27 Nov 2006. In the same way, it took the Dow back down to its 30 days MA and then bounced off nicely to new highs. We have yet to see a breach in the 30 days MA and a testing of the 50 days MA yet, but if it happens, it might be a prelude to something less pleasant. For the Nasdaq Composite, we are back where we started last week... if the 50 days MA fails, we should see a testing of the 2400 level, failing which, the Nasdaq Composite would go into a bear trend like the one we saw in May 2006 when it failed its 2300 support level. Yesterday's action took both indices back down from an uptrend classification to a neutral trend classification. Traders need to be wary. It seems like January has always been a rather turbulent month over the past few years and yesterday's market action took me totally by surprise. Again, the adage goes "The market has a mind of its own"... it does not necessarily follow the expectations of mere mortals.
The stock market took all of us by surprise yesterday. It felt like our travel bus has just been car-jacked just a stop from our travel destination. Just when the market is picking up on all the fantastic earnings coming in these 2 days and the great economic data, existing home sales reported a "larger than expected" decline. This, again sparked new worries on whether the housing sector is indeed coming to a soft landing as billions of dollars are at stake there along with billions in mortgage and whether the Feds would cut interest rates soon. The US treasury's benchmark 10 years note also rose to 5 months high, breaking the 4.8% barrier. This further encouraged exit from the equity market in favor of the bonds market. Yesterday saw the hardest one day fall of 2007 so far and it all happened so fast that it caught all of us by surprise. So, if this is happening despite as the great releases so far, then there is little fundamentals we can fall back on to look into the future... let's go technical...
TECHNICAL ANALYSIS
Talking about a hard hard fall. My mentor used to tell me that the bulls take the stairs and the bears jump off the windows... that was what we witnessed yesterday. The Bears took out in one day what the bulls built in 2 days. Both the Dow and the Nasdaq composite are back down to their respective 30 days MA and 50days MA support level. The candlesticks are showing a bearish engulf formation which indicates a strong and sudden shift of investor sentiment from bullish to bearish. All momentum indicators also showed a sharp reversal of momentum to downside. So, are we still safe? Yes, but we are certainly at the edge of the cliff once again. The Dow is still riding above its strong 30 days MA support level and many times, it has bounced off this level after strong sell-offs like we saw yesterday. One example would be the 1.29% sell-off on 27 Nov 2006. In the same way, it took the Dow back down to its 30 days MA and then bounced off nicely to new highs. We have yet to see a breach in the 30 days MA and a testing of the 50 days MA yet, but if it happens, it might be a prelude to something less pleasant. For the Nasdaq Composite, we are back where we started last week... if the 50 days MA fails, we should see a testing of the 2400 level, failing which, the Nasdaq Composite would go into a bear trend like the one we saw in May 2006 when it failed its 2300 support level. Yesterday's action took both indices back down from an uptrend classification to a neutral trend classification. Traders need to be wary. It seems like January has always been a rather turbulent month over the past few years and yesterday's market action took me totally by surprise. Again, the adage goes "The market has a mind of its own"... it does not necessarily follow the expectations of mere mortals.
Labels: fundamental analysis, investment, share market, stock market, stocks, technical analysis
posted by Jason Ng at 7:35 PM
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