Long Awaited Stock Market Avalanche Begins!!

FUNDAMENTAL ANALYSIS
It was almost by concensus that markets around the world, including the US market plunges after China's Shanghai Index plunges by over 8% in a single day. Dow plunged over 416 points in one day and could lead to the long awaited correction in the US Market. We have not seen this kind of single day drop since Sep 2003. Alan Greenspan's speculation of a recession served as a catalyst to this correction and is followed up by today's correction in the global market... everything seems to tie in nicely for the kind of correction everyone's been waiting for. Sit tight everyone!

TECHNICAL ANALYSIS
There was no doubt at all what happened today! It was surprising, strong and without a trace of doubt... the correction HAS BEGUN! Both the Dow and Nasdaq composite broke strongly to downside, out of their neutral channel on strong volume. This is definitely a concensus move and anyone still in today will be dying to get out tomorrow. All technical indicators are screaming for us to get out of longs. I believe we should see a testing of the 200MA at 11775 before the Dow pullup a little. All traders speculating for a rebound should know that a Dow rebound after a 3+% drop usually happens near a bottom, not at the peak of a bull trend. I will not bet on it personally. Well, My Educated Hunches completely changes today.




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Markets Ditch On Greenspan's Outlook

FUNDAMENTAL ANALYSIS
Markets took a blow today as ex-Fed chairman Alan Greenspan suggested that there might be a recession coming later this year. This is further compounded by oil prices holding steadily above $61. Higher oil price put pressure on the transportation sector as usual with decliners leading advancers by 4 : 1. However, the internals for the market wasn't bad with advancers parring decliners. The Chicago PMI and ISM this week could still help lift the markets if they turn out well. If oil prices continue to climb on the higher demand due to snow storms, it could end the current rally and put the market into a correction.

TECHNICAL ANALYSIS
As expected, the Dow corrected right down to the 30 day moving average line and looks poised for another rebound. No surpise on that front. What will seriously surprise me would be if the Dow should close significantly below the 30 days moving average tomorrow on significant volume. That could spell the start of a Dow correction. The Dow has closed slightly below the 30days MA line only once on 28 Nov 2006 ever since this rally started. That was done on low volume and not by a significant margin which did not end the rally then. I think we should see a rebound to new highs soon. On the Nasdaq front, the Nasdaq 100 failed to make a resistance level break as expected and has brought the Nasdaq composite down for a second straight day. With both the Nasdaq composite and the Nasdaq 100 still in overbought condition, we could see a testing of the 50 days MA soon. That would set the Nasdaq composite back down into its lateral channel again. I was so close to changing my hunch for the Nasdaq composite to a bull trend but now, I was right for being just a day more patient. Nasdaq remains plain water to me.


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An Up & Down Week...

Well, it has been an up and down week which opened with a lot of bullish expectations but ended mixed. The Dow ended the week down 0.92% and the Nasdaq Composite ended the week up 0.72%. The week has been ramaged by an army of bad news trying to stomp down the bullishness in the market like a demonstration gone bad. Higher than expected CPI numbers, surging oil prices, uncertainty in the Iranian front, lowering oil inventory..etc... However, it seems like the bulls are still strong and have held up the Nasdaq composite so far. Next week is going to be a week of many significant economic releases. Could the numbers cause further panic and break the last of the bulls?

Looking at the weekly charts, both the Dow and the Nasdaq composite continue to look extremely healthy. Both indices continue to make a higher high and a higher low this week, which is an indication of strength. One warning sign jumped out at me from the Dow chart though. The weekly ADX, which is a trend indicator, is already above the 50 area, this is an area where we frequently see corrections or a change of trend to a neutral trend. I will be monitoring on a daily basis in order to pin point when and if it happens. Stay tuned...


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Stocks Mixed For a Second Straight Session

FUNDAMENTAL ANALYSIS
Stocks closed mixed once again today as rising oil prices continue to dampen sentiments in the market. Oil price has seen the light of day once again as it rises above its psychological resistance level to close near the $61 level. Oil has closed this high for the first time since December and certainly looks like it could go higher with all the excuses it needs in place... Increased tension with Iran, the upcoming driving season, lower petroleum inventory and hedge fund moving into commodities. Higher oil prices leads to higher production prices and hence higher retail prices, things that the economy definitely don't need at this point in time. Higher oil prices may not have an immediate impact on the stock market eventhough in the long run, it certainly will.

TECHNICAL ANALYSIS
Indices continue their expected and normal route of advance today as the Dow pulled back slightly for another day and the Nasdaq composite slowed its advance forward. It is certain normal for the Dow nowadays to pull back for up to 3 days before surging to another new high, forming yet another step in its staircase formation. In fact, it could go all the way down to its 30 days moving average tomorrow, let's not all be surprised or be put into a panic. The Nasdaq composite slowed its advance as the Nasdaq-100 comes up against its 1850 resistance level. As I have mentioned in my post yesterday, I expected the Nasdaq-100 to find the 1850 resistance level a strong one as it is already in the deep short term overbought region. The Nasdaq-100 and the Nasdaq Composite are displaying a huge spinning top signal at the overbought region and that is usually a very bad thing. Such huge spinning top formations usually decompose into an evening star formation, which is a strong downside reversal signal. Today is again critical to the Nasdaq composite. There is no telling if it will make an advance tomorrow but chances are that it may be more inclined to downside as the Nasdaq-100 doesn't look ready for a topside break yet.


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Microsoft Shares (MSFT) Stages Strongest Rally Since 11 Jan!

MSFT $29.35, +1.80

MSFT rallies after my report on its "Selling Climax" 2 days ago! In fact, it staged the greatest single day rally since 11 Jan 2007 despite being involved in yet another patent war. This time against AT&T for use of their digital speech coder in Windows overseas.

Despite all that, the technicals look simply beautiful! Short term MACD continues to climb in upside momentum and short term stochastics continued up following a "kink". A "Kink" in short term stochastics always mean more upside to come. Volume is also on the rise, supporting the rally. 5MA also crossed 10MA for the first time since this correction begun. All technical indications are shouting "Hooray!" and it will not be surprising to see swing traders begin to accumulate at this point. My sentiment remains Bullish.


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Stocks Mixed On High CPI Numbers

FUNDAMENTAL ANALYSIS
Stocks opened deep in the mires and closed mixed after CPI numbers showed a "larger than expected" increase in January by 0.3% (analysts are expecting 0.1%). While the CPI numbers did spark some concern that the Feds may be overly optimistic about the results achieved by the rate hikes so far, markets still ended with pretty decent internals with advancers parring decliners 1 : 1. I am impressed with the overall bullishness in the markets today as it held up such great internals despite a barrage of spirit dampening releases and Oil price surging to close slightly above $60. Today is the peak of the storm for the week and with nothing more to shake the markets this week, I would expect the bullishness to return again tomorrow.

TECHNICAL ANALYSIS
No big surprises today as the Dow dipped slightly as it always had before rebounding into new highs and the Nasdaq composite staged a weak followup to the resistance level break of yesterday. I did not see the kind of strong follow up in the Nasdaq composite today as volume was still mediocre. This does not convince me yet that the Nasdaq composite is ready to trade above the lateral channel within which it has been trading since November 2006. I do however agree that its current sentiment and momentum remains strong to upside. I am not seeing a significant decline in upside momentum in the Nasdaq composite yet as all momentum indicators remain strong. With such strong upside undercurrent, I would expect to see the kind of follow up tomorrow that will change my sentiment on the Nasdaq composite.

If I am so "confident" about the Nasdaq composite, why am I not indicating "Bullish" yet? Well, that is because the Nasdaq 100 is still a distance from its 1840 resistance level and is already into the short term overbought condition. It may be difficult to stage a resistance level break from such overbought condition and if it fails and dips again, it could bring down the Nasdaq Composite too.

That is just me... I am the kind who wants to see real evidence instead of going on a mere hunch. That being said, the Nasdaq composite is still long term bullish as it formed a bull flag formation. We saw similar bull flag formations before in May 2005 and December 2005 before and it usually followed up with a short but strong surge upwards. I am looking for signs and evidences for the beginning of the surge so as to make a move. Thats the difference between swing traders like myself and other long term investors.

I remain Neutral on the Nasdaq composite and Bullish on the Dow.



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Stocks Gained On More Good News...

FUNDAMENTAL ANALYSIS
Markets continue its bullishness this week as oil prices continue to drop and Fed official's comments that the housing slump could be bottoming soon and will therefore not drag the economy down. Along with these great market moving news, a couple of great earnings release today also helped the market along. A bullish tone continue to persist in the markets as the earnings season nears its end and that is definitely a great thing. The Consumer Price Index due this Wednesday is going to validate what Uncle Ben has said about controlled inflations and all that optimistic talk last week. If this number fails to impress, it would definitely have a negative impact on the market as everything Uncle Ben said will become doubtful. Analysts are expecting 0.1% versus a 0.5% last month.

TECHNICAL ANALYSIS
Nasdaq made the all important 2500 break today at last! Even though the break was not supported by a very strong voume, it was at least done on rising volume. A steadily rising volume still does speak a lot about a strong trend. I would like to see at least a follow up to this break tomorrow on rising volume to confirm the change in trend. As for the Dow, there was again no surprises as it continues to move sideways with a bullish inclination, completing yet another step in its staircase formation. I would say we should see yet another new high in the Dow by end of this week or early next week.


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Microsoft Shares (MSFT) Goes Into Selling Climax

MSFT $28.74, -2.44%

What a surprise with MSFT last Friday. :) It was a nasty but interesting surprise.

All over the news wires, analysts are attributing the 2.44% drop to nasty Vista comments. But, is this the first time we are hearing nasty comments about VISTA?? Vista has been the center of controversy, nasty comments, hacks and security problems since the very first day... did all these comments finally accumulate into a 2.44% dropp on Friday? I don't think so.

Looking at the technical charts tell us a more intelligent tale. MSFT ditched on a huge volume surge indicating what we call a "Selling Climax". A selling climax suggests a last ditch effort by the bears to bring prices down. Such a selling climax indicates that the bears are expended and ready for the bulls to take over. Similarly, such a volume surge at a peak indicates a "Buying Climax" where the bears are ready to take over. A recent example is a "Buying Climax" on 12 Jan 07 leading to a correction in MSFT that lasted till now. I continue to see MSFT as Bullish. :)



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A Brand New Trading YEAR Starts...

Happy Chinese New Year To All Chinese And All Other Folks Who Celebrates Spring Festival.Unknown to most, Chinese New Year is celebrated over a 15 days period from the First day of the Lunar calendar to the 15th day of the lunar calendar. This is unlike any other festivals in the world.

Last week has been an extremely bullish week in the markets with the Dow and the Nasdaq Composite coincidentally gaining 1.48% each. The bullishness was contributed largely by an overly simplistic and optimistic testimony by Fed Chairman, Uncle Ben. Investors were largely caught up with inflation worries and rate hikes more than an economy that is losing its competitiveness and slowing down. Similarly, Uncle Ben seems more concerned with inflation reports than anything else too. Is this the paper that is attempting to cover up the fire beneath?

HAPPY CHINESE NEW YEAR~!

Microsoft Shares (MSFT) Completes Turnaround!

MSFT $29.46, +0.20%

Microsoft Shares (MSFT) behaved as I hope to today as it continued a 3rd day of gain on growing volume. My complaint about MSFT's invert hammer formation was that it was not supported with a strong volume surge, however, MSFT's price action today formed a Hammer candlestick formation (not an Inverted Hammer) on higher than average volume. A Hammer formation is formed when prices closed near the high of a large intraday range. This suggests that the bulls were strong enough to take over by the end of the day to close prices higher eventhough there were significant selling pressure bringing prices to intraday low. This is an extremely bullish candlestick signal when supported by a significant volume surge... like the one we saw today. This move tells me that the MSFT rally is confirmed and we can expect more upside to come.

All short term momentum indicators showed that there are more headroom to go with growing strength to upside. For now, I am BULLISH on MSFT and see an immediate resistance level at $30.00, which is the 30 days simple moving average which used to be its support level. A high volume break above that level would certainly ensure more upside to go.


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Stocks Extend Gains As Rate Hike Looks Dim...

FUNDAMENTAL ANALYSIS
The Dow made another historical high today as more evidence to Uncle Ben's claims surfaced in today's economic reports. What are these evidences? A big jump in unemployment last week, a record high trade deficit, a death drop in industrial output, a weaker than expected manufacturing in Philadelphia, continued housing slump...

With the economy slowing and weakening at this pace, surely there are no reasons why interest rates should be further raised. The only question is, what matters more to an economy? Higher interest rate? A weaker economy? Even Uncle Ben couldn't answer to that question. So far, Uncle Ben's so caught up with trying to tie down baby boomer's money in the markets by giving investors exactly what they want to hear and see that few questioned or answered to these fundamentals. Seriously, what is actually going to cause severe damage to the US economy is the large scale baby boomer drawout looming in the horizon and by giving them a reason to continue to keep their money in the markets is certainly one way to delay the inevitable.

TECHNICAL ANALYSIS
No surprise today as markets continued its advance at a slower pace. The Dow looks like it is ready to move sideways again in preparation for yet another step in its staircase formation. Volume of trade is significantly lower today indicating a lack of follow up to the rally yesterday. This is hardly surprising as that is the way the Dow behaved since the rally begun. Tomorrow is going to be a critical day for the Nasdaq Composite as it has reached the 2500 resistance level at last. Tomorrow will reveal if it will make a break and begin a bull trend or not. Things still look good for a break as short term stochastics is still a small jump away from being overbought and MACD continue to show growing upside momentum. Even though that gave me enough reasons to believe that Nasdaq will at least make a short term surge, I will not change my sentiments untill I see actual proof of a break.


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Microsoft Shares (MSFT) Ends Correction On Schedule!

MSFT $29.40. +1.34%

Well well, MSFT is on time on schedule this time round isn't it? :)

Its turnaround was completed yesterday as MSFT gains 1.34%. Short term stochastics and RSI along with MACD unanimously indicated upside momentum. There is just something I do not like about this "turnaround"... It did not happen on the strong volume that I typically see associated with a full scale turnaround. In fact, the candlestick signal that was formed was again an inverted hammer. The difference about this inverted hammer and the one that we saw on 8 Feb 07 was that the first inverted hammer showed that there are buying interest in a stock and when supported by the right technical indications will mean that a decline is coming to an end. This inverted hammer showed that buying interest was beaten down by the end of the day on relatively low volume. This suggests that buying interest is still shaky and that this turnaround may not be real. This gain may be due to the effects of the optimism and rally in the market yesterday and not something related to MSFT in particular. I would love to see a follow up today with strong volume before I conclude that MSFT's second rally has started. For now, I remain neutral on MSFT.

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Valentine's Day Present From Uncle Ben...

FUNDAMENTAL ANALYSIS
Markets continued its bullishness today as Fed Chairman Bernanke (Uncle Ben) took the bench and painted a rosy picture for all investors to lavish on. Here are some market moving quotes:

"inflation pressures are beginning to diminish."

"likely to foster sustainable economic growth and a gradual ebbing of core inflation."

"Overall, the U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes,"

Uncle Ben sounded extremely optimistic and is a great contrast from what we have heard from the Feds so far... this makes the intent highly suspicious. Well, no matter what the intent may be, this is exactly the kind of things investors love to hear from a man like Uncle Ben... no matter if it be true or not. This, along with a drop in oil price due to healthy oil inventories, helped to push the Dow to yet another historical high. There will be more heavy weight economic release along the week which should either give emphasis or diminish what Uncle Ben just said. Realistically, we should not be getting a rate cut anytime soon as core inflation numbers are just beginning to go down. I seriously don't think the Feds will start to make any adjustments when their efforts has just begun to show up.


Technical Analysis
The Dow is at new highs! Did it come as a surprise to you? Certainly not to me. Here's my quote from yesterday:

"If the pattern holds, we should see a new high by tomorrow."

And indeed, we see the Dow at new highs today, beautifully and faithfully completing yet another step in its staircase formation. It is also interesting to note how nice economic news seems to tie in nicely with every step that is formed in the Dow chart. The Nasdaq composite has been faithfully neutral for a few days and have been off my focus for a while, today, the Nasdaq composite made a comeback at last to challenge the 2500 resistance level. The last time the Nasdaq composite made a trip this high up, it is already in the deep overbought condition. This made it very difficult to have any energy left to break a resistance level. This time round, the Nasdaq composite is still a mile from being overbought and with growing upside momentum on growing volume, it looks like it just might make it this time round. A high volume break above the 2500 level with a nice follow up will bring Nasdaq out of its current neutral trend into a short term up trend. As for the Dow, it is almost certain to see it start to go sideways again tomorrow or the day after. So far, both indices has stayed true to their patterns and my sentiments remain Bullish for the Dow and Neutral for Nasdaq.



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Microsoft Shares (MSFT) Breaks 8 Days Losing Spree!

MSFT $29.01, +0.24%

Microsoft shares (MSFT) broke an 8 days losing spree at last with a small up day. I mentioned yesterday that MSFT may start to turn sooner than we expected and probably before it hits the $28.00 support level. Does it look like it is happening already?

Does this mean that MSFT is going to stage a rally from this point onwards? Well, it might, but it is still too early to tell. As technical analysts, we are like medical doctors. We look for syntoms and then look for further evidence before declaring an illness.

A small up day like this is again a common continuation pattern called the lowering steps formation. The pattern goes that a few days of small sideways or reverse movement usually follow a significant move before another significant move in the same direction occurs. There had been a lot of such examples and XEC on 27 Feb 2006 is one of such classical examples.

However, some thing about MSFT's movement tells me that something is different about MSFT's move. For a classic lowering stairs formation to work out, it should usually occur with the stochastics off the oversold position. That gives it the potential and room to move downwards further. In the case of MSFT, however, it is already in the deep short term oversold position with MACD clearly indicating a reversal to upside momentum from a very deep region too. Both Short term stochastics and RSI are also turning up for the first time since the drop begun 8 days ago. A reversal from such an oversold region is also a very strong syntom. Tomorrow is going to be critical for MSFT. If MSFT follows up with another up day on strong volume ( volume at least at 2 days high ), I would say that MSFT's correction is done.

For now, my sentiments (my sentiments are short term and more swing trading based by the way. My long term sentiment on MSFT has always been Bullish.) on MSFT upgrades to Neutral from Bearish.



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Alcoa Injected Excitement Into Sluggish Market!

FUNDAMENTAL ANALYSIS
Sometimes I would rather call Fundamental Analysis, "Sentimental Analysis". :)
Market sentiments took a 180 degrees turn today as the Dow surged 102 on reports that 2 seperate companies are looking to take over Alcoa (AA). AA surged 6.38% in a single day on this news ending up $35.00. These are the kind of news that sends every investor rushing into a single stock. On top of that, oil prices also surged by almost 2% today, lifting the Energy sector to a 3 : 1 advance. All in all, the markets has started out very encouraging this week. Whether this momentum continues or not really depend on how well the heavy weight economic data goes for the rest of the week and what sentiment Chairman Bernanke decides to throw into the market. The market remain highly sentimental and easily shaken by the slightest indication of inflation and weakening economy. Already U.S. trade deficit has widened in December to $61.2 bln in a report yesterday but has so far been ignored amidst the Alcoa excitement. If Bernanke's testimony and the rest of the data this week prove to be weak, investors will start to take it seriously. Today, participation in the market is not impressive either as volume remains slightly below average for the month. This shows that a lot of investors are still sitting on the sidelines waiting for the heavy weight economic comments and data to hit the wires. Let's keep our periscopes up while bathing in the excitement.

TECHNICAL ANALYSIS
Today is a day which is both surprising and not surprising. What wasn't surprising was the rebound in both the Dow and the Nasdaq composite. They behaved as we have expected and therefore is not surprising. What was surprising was the readiness at which it happened. Even though I expected a rebound in both indices, I really expected the Dow to do so only after another day or two of crawling along the 30 days MA and after the Dow's short term stochastics has crossed below the 50 line. Well, with today's surge, the Dow has once again begun the formation of yet another step in its staircase formation. If the pattern holds, we should see a new high by tomorrow. Eventhough all technical indications remain healthy to upside, I do see a negative trend developing in the Dow. The Dow's rally so far has showed up on the ADX as a healthy, growing bull trend until 27 Nov 2006. Since that day, ADX has been showing a really mixed and uncertain trend and since that day, the Dow's rally has slowed down and the gradient of its 30 days moving average has declined significantly. The result of which is an extremely choppy market which makes it very hard for short term technical swing traders to take a swing at a home run. If this pattern continues, it will not be surprising to see the Dow slowly and stealthily degenerate into a neutral trend. For now, my sentiments remain the same... Bullish on the Dow and Neutral on Nasdaq.



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Microsoft Shares (MSFT) Goes Marching On...

MSFT $28.94, -0.14%

Microsoft shares (MSFT) goes marching on southwards with yet another lower low and lower high. Today, MSFT's chart displayed a typical candlestick continuation pattern where a day of significant drop is followed by a couple of days of smaller drops. We saw the same pattern back on 6 Feb 07. This pattern usually mean more downside coming up, however, we see some exceptions today. Unlike the continuation pattern on 6 Feb 06, MSFT's short term MACD indicated a loss of downside momentum along with a drop in volume versus yesterday. This tells me that there is a lack of followup to the drop yesterday and that this correction is not supported by mass concensus. Such a trend may not last very long. A strong correction that really cause damage and concern must be backed up by the kind of strong volume that we saw back in the May 2006 correction.

Every analyst in the world today is calling for a buy on MSFT and shouting out that MSFT is "On Sale". That served to breed bullishness and further eliminate bearish sentiments in the markets.

With a loss of downside momentum and a shaky level of participation to downside, I would say that the $28.00 support level is going to be a strong one. In fact, I will not be surprised if MSFT starts to turn before that level is reached. For now, I remain Bearish on MSFT.

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Markets Tremble Ahead Of Bernanke Testimony

FUNDAMENTAL ANALYSIS
Markets follow up on last Friday's bearishness today ( Dow - 0.22%, Nasdaq - 0.38% )ahead of Fed Chairman Bernanke's testimony in front of the Senate and House representatives. After all that hawkish talk by Fed representatives last week, all investors will be peeled to listen out to Bernanke this Wednesday and Thursday for any further clues as to what the Feds might do next. A week of important economic data ahead, dropping oil prices bringing the energy sector down, widely held sentiments that a correction is at our doorstep and volatility caused by an option expiration week, all act together to form the bearish undercurrent that we see now. Oil took a hit today and closed below $58 at $57.90. That caused a broad based decline in the Energy sector with decliners leading advancers 5 : 1. This week's PPI and Consumer Sentiment numbers would really be the kill or cure of this market now as investors need to see that inflation is under control and consumers are happy before any bullishness will return to the markets.

TECHNICAL ANALYSIS
Back to my favorite section. :) Sometimes life can be very simple. Just as you would gauge the health of a fax machine by the fineness of its print output and the health of a light bulb by the brightness and consistency of its glow, we can gauge the health of the market by its charts too.

As I have mentioned yesterday, the main things to watch out for this week is whether the Dow and the Nasdaq Composite hold or break their 30 days moving average support level. After today's 0.22% drop in the Dow, the Dow continues to hold above its 30 days moving average line with significantly lower volume. The Dow may trade atop its 30 days moving average for a few days before continuing its staircase like formation to new highs. We saw the same action on 27 Nov 06 and 25 Jan 07.

How about the Dow popularly being "Overbought"? Well, seriously, how do we determine overbought in this case? The Dow is used to trading in the deep, long and short term overbought condition with very little retreat or correction. That would mean that bailing out simply because it is "overbought" on the RSI or Stochastics do not make very good sense in terms of profit maximisation. The weekly and monthly time frame continues to show higher highs and lows with no clear indication of a correction yet. The 3 days drop in the Dow has also helped it get off its short term overbought condition and that is forming the stage for another possible rebound. Commonly, we see the Dow rebound from its 30 days moving average once the short term stochastics cross down below the 50 line. At this point of time, the Dow's short term stochastics is still a small leap to the 50 line. That gives more evidence that the Dow will continue to trade sideways along the 30 days moving average while setting its stochastics back down to the 50 line at least.

So, what about the "Bearish" sentiment so far? Well, a bearish sentiment reaches a concensus and really affects the market when we see a ditch along with a surge in volume at a critical support level. After that, the bears should continue to follow up with a few more days of drops along with rising volume to set the bearish engine into action. This was exactly what I saw during the May 2006 correction. So far, I saw neither a neck breaking, support level jarring ditch nor do we see rising volume supporting the move to downside.

Now, am I saying that the market will rise infinitely? Definitely not. I have defined the exact beginning of a correction as "A break below the 30 and 50 days moving average on high and rising volume". If that happens, we might see a correction as deep as a testing of the 100 days moving average.

Now, what about fibonacci? Well, I still think that is a highly subjective psuedo science that requires the most developed minds in predictive technical analysis to execute reasonably... guess I am just not that highly evolved yet...hahaha. (Seriously, if any of you readers are good Fib analysts, I sincerely invite you to co-author this blog. Just email me at founder@mastersoequity.com Please)



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An Exciting & Critical Week In The US Markets....

This is going to be an exciting and critical week in the US markets...

This is going to be a week full of important economic releases which every investor will be watching after the Fed has everyone on their toes with their speech last week...
(For free weekly market calendar, put/call ratios, news headlines and more all on ONE PAGE, please visit and bookmark Option Trader HQ)

This is going to be a week where the Dow and the Nasdaq composite decide if their 30 days MA support level still hold or not. A high volume break below their 30 days MA this week could mean that the correction that everyone has been waiting for is here at last...

This is going to be the week where MSFT (after a 4.01% decline last week!) decides if it will halt its decline at the $28.00 Support Level or not...

All these and more will be revealed to you as I watch, comment and analyse the markets and MSFT this week...

STAY TUNED!




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Microsoft Shares (MSFT) Slipped Below 100 Days Moving Average...

MSFT $28.98, -0.96%

Microsoft shares (MSFT) slipped below its 100 days moving average last Friday to close $28.98 after showing an inverted hammer candlestick signal. It not only broke a fairly important level but also did it on a volume surge. Yes, MSFT's trading volume was at 3 days high last Friday when the bellwether stock ditched further down. So, what does a break on high volume mean? Yes, more downside to come. As I have mentioned yesterday, if MSFT slips below its 100 days moving average, we could be seeing a testing of the 200 days moving average next. Currently, the 200 days MA stands at the $26.50 level. Certainly looks like a long way down, doesn't it? However, opening up the time scale, we see that the $28.00 level used to be a strong resistance level for MSFT. Such a resistance level, usually serves also as a strong support level. Now that the swing traders and trend traders have jumped onto this bearish wagon and has brought MSFT lower on rising volume, a testing of the $28.00 will be inevitable. Let's see how the stock behaves at that level. For now, I remain short term bearish on MSFT but I continue to maintain a long term bullish outlook for MSFT with $33 as my immediate price target.




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Winter Chills Set In On The Bulls...

FUNDAMENTAL ANALYSIS
Markets took a beating as a snow storm takes New York city today. The chill seems to have set in on the markets as well as the Dow took a 0.45% beating and the Nasdaq composite erased 7 days of gains, collapsing down 1.16%. Everything in the world seems connected in all ways. A comfortable warmer winter gave the markets a boost and when the snow come back, the markets go into hybernation too. This avalanche was due mainly to a severe letdown in the Financial and Tech sector as borrowing rates increased. Let us not forget that the Financial sector contributed to 8% of the 11% growth in the S&P500 and a correction in the financial sector will certainly make itself heard. Decliners in the Financial Services sector led advancers by more than 3 : 1 and decliners in the Nasdaq 100 led advancers by more than 8 : 1! The Fed's hawkish statement underlying that inflation is still a concern further depressed investor sentiments. Next week is another week of economic releases and that could be another reason for the bail out today. Investors would want to play it safe by taking profits off the table before the uncertainty set in next week.

TECHNICAL ANALYSIS
I was surprised today at how readily the markets corrected today by such a great magnitude. I expected the Dow to take a slight dip before it climbs to new highs and that the Nasdaq composite will struggle against its 2500 resistance level but what surprised me was the magnitude and the readiness at which it happened. Well, what was again not so surprising was that the markets are used to doing things like that anyways. That is why technical traders like us read the overall chart patterns and not get all caught up with what happened on any particular day. Both the Dow and the Nasdaq Composite closed near their 30 days moving average support level, which are still healthy. As the indices are still only very slightly off their short term overbought condition, it will not be strange to see Nasdaq trade sideways a little for a few days along the 30 days moving average before mustering enough energy for another charge. As for the Dow, I see that it has completed another step in its staircase formation and is ready for a rebound to new highs and we might see that happen within these few days. But does that mean that the Dow will continue to rise endlessly? Definitely Not. So what will the first indication of a correction be? A Close Below The 30 days Moving Average.


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Microsoft Shares (MSFT) Dives For A 6th Straight Day...

MSFT $29.26, -0.37%

I recieved an interesting comment in Digg on my daily Microsoft stock action analysis. It kinda goes that "Why are you saying that microsoft is going down when it has been up for 6 months?" Interesting, huh? It is as good as asking why does a ball start to drop when it has been rising through the air for the past 5 seconds after I throw it hard in the air. No matter how long a stock has been rising, it comes a point in time where it must fall, at least a little, to the nearest support level. This is the Law and the way stock actions behave. This is an excellent time for swing traders to make some money to downside. As a technical analyst, I simply watch and read what the chart actions and technical indications are telling me. This puts me ahead of all minor and major trends.

Microsoft (MSFT) continue to show persistent weakness today as it dropped for a straight 6th day. Today, MSFT is showing an inverted hammer candlestick formation. Such a formation tells us that some accumulation is occuring at this level but do not have the strength to persist through the day and is brought back down by the bears by the end of the trading day. However, this is not a strong bear trend we are witnessing in MSFT. This is probably just a slight technical correction to the 100 days or 200 days Moving average support level. Volume has been steadily declining over the past 6 days and that tells us that this swing is not supported by mass concensus and is destined to fail at some point and start accumulating.

With MSFT now in short term deep oversold condition and evidence that some level of buying activity has started to enter the stock, I would revise my short term outlook to a testing of its 100 days moving average. A break to downside from the 100 days moving average of around $29.00 would see a probable testing of the 200 days moving average. Short traders should consider covering at least half your positions by now.



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Stocks Show Resilience In Face Of Higher Oil Prices & Bearish Housing Outlook...

FUNDAMENTAL ANALYSIS
Stocks were down just marginally today as oil prices break the $60 psychological resistance level and reports that home prices have yet to reach a bottom. Stocks have been incredibly resilient in the face of these traditionally market moving bad news this time round as advancers par decliners 1 : 1. Stocks hit today are from the Materials & Construction sector as stocks like TOL plunged 3.02%. US homes are estimated to be more than 400,000 more than demand can handle and will continue to pose a problem to the supply/demand curve. Frankly, the stock market has been handling the housing crisis well so far as it does look like it is in for a soft landing, as the Feds wanted it to be, even though we are not seeing a bottom just as yet. Giving markets a lift today from its intraday low was oil prices breaking the $60 level, lifting the energy sector. It does look like, so far, that the OPEC production cut along with a higher demand as the winter chills return in a big way is acting together to give oil prices a serious boost. Will this rally in oil prices put pressure on the stock markets?

TECHNICAL ANALYSIS
Ah... back to my favorite section. As a technical chartist, I somehow see more sense from my charts than from the news most of the time.
Again, no surprise today as both the Dow and the Nasdaq composite closed sideways. The Dow formed a "Hammer" candlestick signal today as market forces take it off its intraday lows to close near opening level. A hammer candlestick signal at this level tells me that there is a strong undercurrent to the Dow. This has also helped the Dow get off its short term overbought condition. A hammer signal occuring along with RSI has moving off from the deep overbought region has preceded the Dow climbing to new highs 4 out of 4 times over the last 5 months. The Nasdaq composite remains short term overbought and has started to lose upside momentum in the face of the 2500 resistance level. Seriously, it is difficult for a tired man to fight a giant and is certain difficult for the Nasdaq composite at such deep overbought condition to make a break anytime soon. It could take a short breather at this level before facing off the 2500 level next week.

I see another interesting pattern emerging today... since 14 July 2006, the market has moved completely inversely to the movement in oil prices. However, that pattern was broken on 18 Jan 2007 as the markets rallied along with the rally in oil prices. What does this mean? Does it mean that higher oil prices will now actually be beneficial to the economy and the stock markets?

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Microsoft Continues Long March Down...

MSFT $29.37, -0.47%

No surprises today as Microsoft (MSFT) continues the long march down. This is the fifth day down for the bellwether stock despite efforts put into to train and teach users on the pros of windows vista and how it can work in tandem with the rest of Microsoft's products for the benefit of small businesses.

Short term MACD continues to show downside momentum as volume continues to decline with no indications that the drop is coming to an end yet. ADX has also started to indicate the beginning of a developing bear trend. Short term MACD is now at the -0.20 level. This is a level where most short term trends start to lose momentum and where MACD starts to reverse upwards. However, it must be noted that stocks do continue to fall even when MACD reverses upwards abeit in a much slower fashion. A recent example on MSFT was the MACD reversal on 4 May 2006. It is still a long way down to the 200 days MA and my sentiments remain bearish until proven otherwise.




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Cisco Breaks The 4 days Lethargy In Nasdaq!

FUNDAMENTAL ANALYSIS
Not much fundamentals at work today as the Dow continue to close sideways on a dropping oil price. The Nasdaq composite took a boost from Cisco today as we have predicted yesterday and headed up 0.77%, the biggest single day gain in 5 days. Wholesale inventories numbers for Dec will be released tomorrow. This number tells us how much inventory is left after December sales and tells the tale of how active retailers had been. Although not a major release, it does hint at the health of the economy and with a complete lack of any market moving news release this week, this may well turn out to be quite important. Expectations are for Wholesale inventories to drop from 1.3% to 0.6%.

TECHNICAL ANALYSIS
Again, no surprise today as the Dow continued sideways to form another step in its staircase formation and the Nasdaq composite continued up towards the 2500 resistance level as expected. Both indices remain in short term overbought condition and looking back at past behaviour, it is unlikely to see the Dow surge to new highs until it has moved sideways enough or even ditch slightly to wear off its short term overbought condition. The outlook for the Nasdaq Composite continue to be extremely uncertain. Even though the Nasdaq composite has moved very near to its 2500 resistance level, the Nasdaq 100 is still a distance from its 1840 resistance level on rising upside momentum. The Nasdaq 100, with its growing momentum and distance from resistance level, may well help to drive the Nasdaq composite beyond its 2500 resistance level. Oil prices has failed to break the $60 resistance level and has started to ditch after taking a bang on the head. Even though it will affect the energy sector negatively, it should help drive the rest of the market up. That is again, another plus for the markets. All in all, my sentiment remains the same... Bullish for the Dow and Neutral for the Nasdaq Composite. (until proven otherwise)



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Microsoft Continues Journey Down ....

Microsoft shares (MSFT) continued its way down today as I have expected yesterday. However, I would only say that it is doing a slow climb down instead of a jump down the cliff. Being an important bellwether stock, it is not strange to see a quick dose of accumulation from bargin hunters, lifting the stock off its intraday lows.

After 4 days walk to downside, the MSFT is now showing a short term oversold condition along with declining volume. However, downside momentum continue to be strong as indicated by short term MACD and all other relative strength indicators.

My sentiment on MSFT continue to be bearish and looking to a testing of the 200 days MA until the indicators and chart actions speak otherwise. As a trend following technical option swing trader, I always place what I can see now first and then keep my eyes peered on the earliest indications of change.





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