Bulls Vs Bears -- Tie

FUNDAMENTAL ANALYSIS
Stocks ended almost exactly where it closed the day before on Friday. We saw increased level of participation from the market as both the bulls and the bears jumped in on the good news and bad news of the day. On the good news end, we have increased consumer spending and a retreating oil price. On the bad news end, we have rising core PCE which means rising inflation again and therefore a rising possbility of another rate hike. Both the bulls and bears ended in a tie in a spectacular day of wide intraday range. These days, fundamental analysis for short term movements are really about sentiment analysis of towards daily news. It seems from Friday's stock market action, there are a proportionate number of bulls and bears in the markets torn apart by the ton of releases pointing both ways with no concensus yet. Until we see some form of market concensus, this market remains to be a range traded one.

TECHNICAL ANALYSIS
Friday's market action was quite a surprise to me as I didn't expect to see such a fierce battle for supremacy between the bulls and bears today. The Dow closed sideways in a huge doji on rising volume. This shows that the bulls and bears are still locked in battle. How the next day opens following such a signal would usually tell which side won the battle and the direction which the day will close. So, how Monday would close would very much depend on how it opens. If it opens higher, it will likely to trade and close higher. If it opens lower, it will likely to trade and close lower. With downside momentum still in existence and short term stochastics still a distance from being oversold, my take remains that the bears might win this round and find support at the 12100 level.


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Bulls Returned On Great GDP Despite Higher Oil Price

FUNDAMENTAL ANALYSIS
Today is really the war of the Titans in the stock market as a heavy weight good news battles a heavy weight bad news. The much better than expected GDP and initial claims data released before stock market opened helped the market open nice and high today. However, when oil prices break above $66, optimism started fading away as stocks started trading in negative territory. Just when all hopes seemed gone, the bulls returned in force on the final hour, closing the Dow up 48.39 points and the Nasdaq composite up marginally by 0.78 points. The final hour surge looked like it was the result of some systematic, institutional bargain hunting more than mass concensus as trading volume was low but the impact was powerful. Tomorrow, the heavy weight PMI numbers could give a further boost to the stock market if it turns out favorable, IF, oil prices don't rally to yet another new high. It does seem like all factors are in line for oil prices to move higher with summer approaching and mounting tension in the middle-east. Yes, tension between US and Iran has yet escalated as the US conducts the biggest scale carrier battle group exercise just off Iranian waters. War is never encouraging to the stock markets and making war when one's economy is slowing down can only be akin to a slow suicide. Let's hope things work out just fine.

TECHNICAL ANALYSIS
Major indices made a surprise gain today and made a kink in the Tower Formation in the Dow. There was clearly some bullishness in the market today, however, the declining volume and continued indication of downside momentum by the short term MACD and stochastics indicators, do not give it much credibility. It clearly didn't take any rocket science indicator to tell that tale as we call all see from the intraday charts that the Dow was in negative territory for most of the day. I, once again, suspect that the stock market is trying to pull up a loose sock. In fact, from the strong downside momentum that still prevails and the weak show of force today, I suspect that tomorrow, the Dow would regain its tower formation path and head back down to the 12100 level as per the game plan.


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Uncle Ben Pulled The Carpet From Under Our Feet

FUNDAMENTAL ANALYSIS
Stocks continue to dive today with the Dow making an intraday low of minus 139 points! This happened directly after Uncle Ben reiterated that the Feds remain inflation cautious, translating to the fact that we will not be seeing a rate cut anytime soon. As if to compound the problem, oil also spiked above $64 intraday due to an unexpected drop in crude inventory. This spike not only put pressure on most market sectors, it also caused a drop in the oil services sector after it failed to close above $64. Well, like I said yesterday, you can find all the reasons to be pessimistic whenever the market drops and yes, I still do not see a glimpse of optimism in the horizon yet. The heavy-weight GDP is due tomorrow with another heavy weight PMI on Friday. I see all the reasons lining up for the market to go down to 12100 as I have expected.

TECHNICAL ANALYSIS
No surprise today as the market continues down along its Tower Formation path. Momentum is increasing to downside with volume slightly on the rise... a classical steady trend. Strangely, even with such a drop, the short term stochastics are still lingering in the overbought region. This, along with such a nice build up of downside momentum, made me feel skeptical if the 12100 support level can indeed hold on and brace the Dow within the 12100/12500 channel that I predicted yesterday. If the 12100 level fails to hold, a testing of the 200days moving average at about 11900 would be the next level of support. For now, both the daily and weekly charts still support the view that 12100 is a strong support level. Let's see what happens and position ourselves accordingly.


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Stocks Dive As Home Worries Spreads

FUNDAMENTAL ANALYSIS
With the Energy sector slowing its advance, it loses its offsetting effect against the home sector which continues to fall today like an avalanche. Many REITs, which are barely holding its nose above the water so far, fell like rocks from the sky. Leading indicators are also pointing to a slowdown in employment (not surprising there with enterprises moving overseas), a grim outlook for the upcoming earnings season and oil prices pushing $64, all contributed to a slightly negative sentiment in the market. You can find all the reasons to be pessimistic right now with not much, if any, reasons to be optimistic in the markets today.

TECHNICAL ANALYSIS
Not surprisingly, my picture of the Tower Formation setup yesterday has came to be today. With the Dow failing at the 12500 resistance level, the Tower Formation is completed and I see a correction back down to its support level at 12100. But will it laspe into a sustained bear trend? That truly is the golden question. I do not yet see a sustained bear trend coming, especially when the weekly charts have such strong support levels. I do speculate that the market will oscillate between these 2 critical points, 12500 and 12100 for at least another cycle before it decides where it wants to go.


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Stocks Closed Mixed Amidst Rising Oil Price And Falling Home Sales

FUNDAMENTAL ANALYSIS
New home sales fell by 3.2% in February while oil price nears the $63 mark amidst tension in the middle east. Even with all these troubling news, stocks managed to close mixed with the Dow down by only a small margin of 11.94. This is due in part to the offsetting effect of a rising energy sector against a falling homebuilder sector. Obviously the home market continues to be weak and expectedly so as real estate investors continue to be cautious in this very sensitive and weak sector. However, analysts are saying that it is unlikely to bring the economy into a recession. So far, we have observed that the home market is indeed coming to a rather smooth and soft landing over the past year. As for the rising oil price, I do not see it as a serious threat to the stock market yet as it has been expected to rise ahead of a higher demand summer. Tomorrow, we shall recieve the consumer confidence numbers and is again likely going to be a market mover.

TECHNICAL ANALYSIS
The Dow and the Nasdaq composite continue to close sideways today as they struggle to break their respective resistance levels. As I have mentioned before, it is normal for the indices to go sideways for a few days following every big move like the one we saw on 21 March 07 and indeed, it has played out that way quite nicely. Such sideways behavior commonly lasts from 3 to 5 days and then stage another breakout. At this point in time, I can only give the possibility of a breakout a 50/50 chance. The 12500 level has proved to be a pretty strong resistance level as the Dow has failed that that level for 4 consecutive days. Most sideways movements following a surge should still see an inclination to upside should the trend be a strong one. So far, we have seen both the Dow and the Nasdaq composite stop short at almost the exact same level for the past 4 days. That, along with the fact that both indices are in their short term overbought position, suggests strongly to me that they may even laspe back down into a tower formation from this point forward. Until more evidence points to the contrary, my take remains Baby bull (neutral with inclination to upside).


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A Positively Lethargic Week...

The Dow closed up 3.06% this week. It was supposed to be a very encouraging week if not for the lethargic trading volume. The lethargic trading volume suggests that there is little public participation nor excitement behind that move. Without a strong public support, no trends can be sustained. Looking at the weekly charts, the Dow has bounced off its 30MA support level very nicely and certainly looks like it is ready to move much higher if we see some increased participation next week. I see the key to further upside as a break on strong volume above the 12500 psychological resistance level. One thing that might make that break difficult will be crude price. Crude rose above $62 on Friday as tensions rise in Iran. 15 British sailors, along with their patrol boat, are being retained by Iran claiming an intrusion into Iranian waters. We will see how that situation develops and its future impact on crude prices.


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Stock Market Mixed As Crude Nears $62

FUNDAMENTAL ANALYSIS
After all that excitment generated by the great stock market surge on Wednesday, stock market was mixed today as oil breaks above the $61 psychological level and nears $62 a barrel. Even though this move caused a surge in the oil services sector, it was clearly offset by a drop in the rest of the sectors, resulting in a mixed market today. Somehow, somewhere along this rise and fall in the stock market, many analysts have forgotten that crude prices is very closely linked to market performance since the rally begun in July 2006. In fact, it was nearly a perfect inverse of oil prices. Even a drop in jobless claims failed to inject any clear follow up on the optimism of Wednesday. With the summer high gas demand season looming ahead, crude prices will definitely have more upside to come. Already, we are seeing petrol prices rise even ahead of crude prices yesterday.

(I will not post all that prices here in this blog. If you wish to see sector movements, indices movement, Cramer's takes and put call ratios all on one page, please visit and bookmark my Option Trader HQ. )

TECHNICAL ANALYSIS
Markets was mixed today as I expected yesterday. A couple of days of sideways or mixed movement after such a strong surge as Wednesday's is completely the norm. This is because after such a strong surge, investors would again want to sit on the sidelines to see if it has strength to move further before committing into it while those who were in it would want to take some profits off the table. Again, the 12500 level remains the next major hurdle before the baby bull can grow up into a full grown adult bull.



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Stocks Soar Following Fed Release.

FUNDAMENTAL ANALYSIS
Clearly, the rally today was completely due to the Fed comments. The Dow surged 159.42 points and the Nasdaq composite surged 47.71 points. The stock market was almost completely flat until the FOMC minutes were released. The Feds have left interest rates unchanged, as expected, and have left comments that the economy is expanding at a moderate pace and that they continue to be data dependant... again, As Expected. Even though everything the Feds said today sounded like it came from a script of my own writing, the stock market still reacted to it in a big way... in fact, too big a way in my honest opinion. Well, no matter what, at least we see a verdict from investors today as volume surged along with the market. This tells us that this move is indeed one that reflects the sentiments of the masses

TECHNICAL ANALYSIS
Well well well, what do we know? :) Yesterday, I mentioned that today is going to be a critical juncture for the market where it must break the 12300 level on good volume in order to complete the W bottom setup for more possible upside and that was what we got today. In fact, sentiments became clear straight after the Fed release and nimble traders would have taken advantage of it to upside right there. For the first time since the ditch of 27 Feb, our ADX is turning out a decline of the bear trend and a taking over of the bull trend. Momentum is strong and market is still a distance from being short term overbought. A few days of sideways trading usually follow such a strong surge, after that, the 12500 psychological resistance level will be the next hurdle and crossing which, we just might see a continuation of the previous bull trend.


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Stock Market Gains Ahead Of Fed Release

FUNDAMENTALS
The Dow gained 61.93 and the Nasdaq composite gained 13.80 ahead of the FOMC minutes tomorrow, despite rising oil prices. I continue to look at this gain suspiciously as the incredibly low and declining volume tells me that this is not the works of the masses but of some systematic influx of funds from some very strong players. The masses continued to stay on the sidelines ahead of the FOMC no matter how predictable the outcome may be. These days, FOMC releases are becoming less and less speculative as we all know that it is not the time to hike nor cut rates. Even so, what many investors do want to see is a rate cut, so will a pause disappoint investors?

TECHNICALS
Tomorrow is the FOMC release and today, major indices are up against their respective, critical, resistance levels. Is this a coincidence or what? That completely puts us on the sidelines even in the technical analysis sense. I mentioned yesterday that the key to this rebound lies in whether or not the 12300 level is broken to upside with respectable volume. So, here we are right now and still the volume is declining. But such declining volume is natural ahead of all FOMC releases. That makes it extremely hard to tell the sentiments behind the "rally" so far and it is also hard to say that there will not be any mass concensus tomorrow after the Fed release. The "W" bottom setup continues to work its magic while we await the final judgment by the public tomorrow.


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Stocks Rebound On W Bottom & B/W Brothers Signal

Fundamental Analysis
Seriously, what the stock market did today (Dow +115.74, Nasdaq +21.75) was nothing fundamental. Yes, there was a couple of interesting mergers but nothing that works out to something that can move the stock market this much in a day. The low volume today also suggests that investors are actually sitting on the sidelines ahead of this week's heavy weight economic releases. Today's stock market gains are really the result of a small but strong influx of funds. Let's see if the technicals paint a more meaningful picture.

Technical Analysis
Stocks rebounded today on the "W" bottom setup and Black & White Brothers candlestick formation I mentioned yesterday and therefore did not come as a great surprise. What was discouraging was the low trading volume today. Such a low trading volume do not give much credibility to this rebound and usually ends up like the stock market pullup of 6 March to 12 March... short lived. If the Dow fails at 12300 again, completely negating the W bottom formation and the B/W brothers signal, it might laspe into a bear flag breakdown into another bear trend. This is certainly not the time to start feeling bullish yet.


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Black and White Brothers Week...

Markets closed sideways today (Friday) again amidst all the chaos created by the quadruple witching, consumer confidence numbers dropping to 6 months low and CPI rising 0.2%. All these numbers continue to tell one tale... that the Fed will not be cutting rates anytime soon. In fact, some analysts are saying that fundamentals do not matter anymore but what the Feds are likely to do. Even though I would agree to that for the short term, fundamental economy strength still matters in the long run.

Some readers may ask, "Obviously stocks were down today, why would you say the markets closed sideways?". Well, simply if the Dow closed within the range of the day before, it is essentially a sideways day as it has merely vibrated within where it did the day before.

Looking at the weekly charts, we see that the Dow and the Nasdaq composite is once again forming "Black and White Brothers" formation atop their respective 30MA. (Please read my post on 21 Dec 2006 for explanations... http://sharemarketcomments.blogspot.com/2006/12/daily-us-market-comments-21-dec-2006-by.html ) There is something different about the black and white brothers formation this time round... a typical strong B&W brothers formation is a closed candle followed by an open candle. This time round, it is an open candle followed by a closed candle. Such a formation is still bullish but it may form a down candle next before rebounding to new highs. This signal is further supported by the fact that the Dow has made a perfect double bottom setup since the dragon tail formation appeared 3 days ago. A double bottom setup, or what is commonly known as a "W" setup, has historically preceded many important rebounds.

The bears certainly look like it is going to sleep with a glitter of conciousness still remaining.


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How Deep A Trouble Is The US Economy In?

2006 current account deficit has soared from $791.5 billion in 2005 to $856.7 billion. What does that mean to the commoner on the street? In an over-simplistic explanation, a trade deficit happens when a country imports more than it exports. This results in more money flowing out of the importing country into the exporting country. With less money in the economy but more products, everything cost more per product resulting in inflation. Inflation is a natural occurance in the growth of every economy but an uncontrolled inflation leads to hyper inflation and eventually depression as we have witnessed both in early China and some parts of Africa.

Trade deficit in the US is now a little like a drug addiction. Knowing that purchasing cheap, imported products and services hurts the economy but no one can resist the temptation of living on cheaper and cheaper products and services in a credit society. This forms a vicious cycle.

This problem is further compounded by the fact that on 10.4% of all investments to the USA in 2006 from abroad was in productive assets. The rest of the money has gone into US treasury, bonds and other such paper assets which in effect, makes the USA pay an interest to foreign countries for the corresponding amount of production resulting from these new debt.

The result of all these will be lower productivity and a shift of labour from high productivity industries to low productivity industries like the service and R&D sector. Consequently, wages might stagnant or even start to drop in order to cut costs and remain competitive. It has been estimated that the US economy is $1.5trillion smaller than 10 years ago and that worked out to be about $10,000 per worker.

There is no simple solution to this issue unless hard fist policies are made against many principles of free trade. Already the administration has started to increase import tax on China imports which will help flow some money back into the economy for every product imported and also help to reduce overall imports. I see the administration already taking small, diplomatic moves to repair the damage that has been accumulated over the decade and we will see how well these highly paid individuals do in these critical times.

(For today's market fundamental and technical analysis, please refer to the article below)

Stocks Gained Despite Worrisome Signs Of Inflation...

FUNDAMENTAL ANALYSIS
Stocks gained today despite wholesale prices soaring up 1.3% in Feb. This is the highest increase since November and was double analyst expectations. Core inflation also gained by 0.4%, which is again much higher than analyst expectations and is double January's gain! All these tells us that inflation is slowly creeping back into the picture and rising inflation certainly gives more probability to the Greenspan Prophecy (recession by end of the year). However, the markets were still led by yesterday's bullish momentum and closed up higher today yet again. However, I do see that there is a significant drop off in volume today suggesting that many investors were starting to feel uncertain about what impact these inflation numbers will have on the market and were already sitting on the sidelines. On the other hand, we might note that the sudden surge in PPI is mainly led by a strong surge in oil price from January to February. If this number is oil driven, then it may not stay up there for long as oil prices are now settling nicely into a $55 to $60 range. Tomorrow, we will have the all-powerful CPI and Consumer Sentiment numbers. While a higher PPI on one month may not necessitate a rise in CPI, it sure does increase it's probability and I sure wonder what effect that will have on the markets this time round. Will the bulls be resilient enough to hang on?

TECHNICAL ANALYSIS
Both the Dow and the Nasdaq composite staged a weak follow up to the Dragon Tail Formation which I mentioned in yesterday's analysis. It was a marginal up day, in fact, a neutral sideways day from a technical point of view, with extremely weak volume. What does something like this tell us? Simply, UNCERTAINTY. This uncertainty is not uncalled for as we are now heading into some heavy weight economic release along with a Quadruple Witching Friday tomorrow (see yesterday's analysis for explanation). Such a day requires technical chartist like us to look at a slightly longer time frame in order to see the real picture and in this case, for short term analysis sake, I choose to go on the 2 days timeframe. The 2 days timeframe have been an excellent time frame for short term swing trading and momentum analysis as it basically erases all the one day sideways movements which serves to be nothing more than distractions. Looking at a 2 days time frame, we still see the dragon tail formation on the Dow on rising volume with stochastics rising out of an oversold position steadily. All in all, still a pretty bullish outlook. Today, we might probably still see the market going sideways or even slightly inclined to downside as most Fridays tend to be (see US Market Trivals). Is the Bear going to hybernation at last? Would its last Yawn still cause a shakeup and would that shakeup wake the bear up again?


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Major Indices Form Key Reversal Signals!

FUNDAMENTAL ANALYSIS
After trading half a day in the ditches, markets found new strength and leadership
from the Financial and Technology sectors, pushing the Dow to close up 57.44 and the Nasdaq composite to close up 21.17. Financials took the bottom from the market yesterday but their swift recovery today took the market off a dangerously low intraday low back up into the green. All these are happening ahead of tomorrow's heavy weight Jobless Claims and PPI numbers, indicating some positive investor sentiment to the outcome of these numbers (see Economic Calender). With the Quadruple Witching (stock options, stock futures, index options and index futures expiring in a single day) Friday drawing even nearer, we can expect more volatility in the markets as it brews up the perfect volatility storm.

TECHNICAL ANALYSIS
A very surprising day at the markets today indeed. I did expect a few days of sideways trading or a few days of slightly upwards trading following a huge ditch on Monday but what I never expected was that it may turn out to form one of the strongest bullish reversal signal that I have ever used professionally. This is what I call a "Dragon Tail Formation". A dragon tail formation is a formation consisting of one huge down candle and then a small up candle with a very long wick or tail at the bottom. Such a formation is extremely bullish as it indicates the market's ability to not only turn up positive but to turn up positive from a deep intraday negative stance. In Chinese mythology, when a dragon appears in your fields and rises to the skies, your family is in for great fortune. That is why the longer the "tail" is, the more powerful the signal will be. A dragon tail formation at this oversold position and on rising volume makes it even more credible. In fact, Worden Brothers calls today a "Key Reversal Day" and here is what they say...

"A configuration we know as a "Key Reversal Day" formed today in each of the Major Averages. Add the fact that volume increased markedly for these averages, and we have all the ingredients for a "Key Reversal Day." Which are: (1) A decline plunges to a new low. (2) It reverses to the upside and moves above the preceding day's close. (3) Volume for the day increases, preferably to a pronounced extent. (4) The final close is preferably at or very close to the day's high...."

I see the bull starting to wake up right now and would love to see a followup to this tomorrow in order to confirm the signal.


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Stocks Surrendered A Week Of Gains In A Single Day!

FUNDAMENTAL ANALYSIS
Stocks completely went flat on the face and surrendered an entire week's gains in one day today! The Dow went down 242.66 points and the Nasdaq composite went down 51.72 points! Decliners led Advancers 8 : 1 in a broadbased stock market earthquake. This landslide happened right after a report from the Mortgage Bankers Association which showed delinquencies among subprime borrowers hit 13.3% in the fourth quarter. That was the highest rate in more than four years. This report hit the financial sector badly as the S&P Financial sector ditched 3.2%. Even the continued slide in oil price do not seem to pump in any more optimism as investors scattered like scared rabbits. Basically what these numbers are doing is to bring out the fear that the economy is indeed doing badly and that the Greenspan Prophecy (of a recession by the end of the year) might indeed be a reality. There are more numbers coming out this week... will the CPI and PPI numbers calm the nerves of our nerve shaken investors?

TECHNICAL ANALYSIS
Well, again, this ditch didn't come as much of a surprise for followers of my blog, did it? As I have mentioned yesterday, with the "rally" so far being weak and unenthusiastic plus the Dow coming up against a strong 100MA (100 days simple moving average) resistance level, the markets might just tumble back down and regain its bear trend. Looked like the 50/50 chance fell flat on the down side. That is why traders must never go on hunches but look for objective evidences and trade according to what is actually happening. Option traders straddling on my advise yesterday to go both long and short should be laughing your way to the bank by now. With such a huge single day drop, it will not be strange to see the market going sideways forming small candlesticks over the next few days. This is also supported by the weekly charts showing both the Dow and the Nasdaq composite on their respective 30MA support levels. With such a strong break to downside on rising volume, I see that the bears have definitely taken over and that the market will most probably continue to drop after that few sideways days. So far, the market has followed a classic mid term bear trend pattern by going down strongly, pulling up its loose sock slightly, before going way down again. As such, we might see a testing of their respective 200MA at about 11800 and 2300 soon.



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Stocks Gained As Oil Corrects Below $60...

FUNDAMENTAL ANALYSIS
Stock markets gained as oil price corrects below the nerve pricking $60 once again. The Dow gained by 0.34% and the Nasdaq Composite gained by 0.62%. Oil price hit below $59 when OPEC announced that they will not be cutting production. This will relieve oil prices in the short term and give the stock markets a little boost but with growing demands all over the world and especially in China, not increasing production is already "cutting" production in a net effect kind of way. Until Cambodia become a major oil producing country in Asia, prices will remain bullish for oil. Yesterday's gain has been the result of a very weak internal. Advancers led decliners by a very very lean margin of almost 1 : 1. Volume was also very weak, especially in the Nasdaq composite, indicating that many investors are now taking a back seat from this "rally" to see what will happen. For me? I am neutral on the market for now. Existing traders should hold both longs and shorts and yet-to-be-traders should stay out until the next trend becomes clear. I am actually more neutral-bearish if you read my picture carefully. :) That means that even though I am neutral now, I am very likely to switch back to bearish very soon.

TECHNICAL ANALYSIS
Markets gained very weakly today. By weak, we mean that there is a lack of strong participation in the market and that prices moved very much within the range of the previous day. We saw that even though both the Dow and the Nasdaq composite gained yesterday, both indices actually closed within the trading range of the previous day. This definitely do not give it much bullishness. The Dow has also pulled up against its 100 days moving average resistance level. If we see a high volume break to upside above that level tomorrow, I would say the Dow is ready to regain its bullish outlook. With stochastics still a distance from being overbought, it does have the potential to make such a break. So far, this "rally" has been weak and discouraging, especially with so many market moving releases due this week. It is going to be an uncertain week ahead with very uncertain outcomes. The markets may make a break and rally from this point or it may simply end its pull up and laspe back down into its bear trend, both possibilities are 50/50. Be cautious.


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A Critical Stock Market Week...

Last week was somewhat of a positive week with the Dow gaining 1.34% and the Nasdaq Composite gaining 0.83%. That was what I called last week as "Pulling Up A Loose Sock". A loose sock starts to drop when you try to do the real work of walking. This week, we will see the real work of some heavy weight economic releases like the CPI and PPI (please see Economic Calendar ). These numbers will either tell us that the economy is not doing as bad as we thought it is last week and give some support to the little pullup we saw last week or that they will support the view that the economy is doing badly and therefore Greenspan's recession prediction might just come true, ending the pullup and allowing the sock to drop again.

Looking at the weekly charts for both the Dow and the Nasdaq composite, we do see some reason for optimism. Both the Dow and the Nasdaq composite has rebounded from their weekly 30 MA support and has also retreated from their mid term overbought level for the first time since the July rally begun. This is a pretty good mid term reversal setup. Being a mid term setup, we might not see an immediate reaction to upside but probably a few days up and down before finally gaining strongly to upside.

Again, we shall let the market do the talking this week. My hunches remain bearish for now.



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US Markets Pulling Up A Loose Sock?

FUNDAMENTAL ANALYSIS
US Market continue its advance today carried along by the global market. Never before have I seen such close and perfect correlation between the US Market and the rest of the world. The US Markets does show a significant correlation to many global markets but never at a degree where it goes up when they go up and down when they go down. Even as the US continues its efforts to create more favorable economic conditions for itself in Asia, few fundamental reasons emerged so far as to provide any real optimism. A gapping trade deficit with China remains one of US economy's greatest worry. US is also trying now to play "consultant" to Cambodia as the once poor country paves its way to becoming the next oil provider. Let's hope the US builds good business partners around the world soon or else investors should start to trade short to mid term and not put too much hope in a hold and pray strategy.

TECHNICAL ANALYSIS
Markets advanced yesterday in what looked like a follow up to the morning star formation I mentioned 2 days ago, however, it looks to me more like it is puling up a loose sock, an effort in vain. A follow up, especially at such a critical juncture, should be backed by a strong market concensus in order to ensure that it is a trend reversal and not a temporary pullback. Such a market concensus is displayed in a good advancing volume at critical reversal points. However, what I saw in the Dow was a lot of volume going both ways yesterday resulting in a sideways close and then an advance today on declining volume, indicating the interest of a decreasing number of participants. In fact, the Nasdaq composite closed lower than its open, resulting in a closed candlestick, suggesting a lack of bullishness, with volume continuing its decline. I fear what we are looking at now is not a trend reversal but a classic pullup on a bear trend. No trends move continuously in one direction only. All trends are marked with 3 to 10 days of pullbacks against the trend and this may be one of them. My educated hunches remain bearish. Swing traders may trade this pullup but always be ready to go back on the short side.



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Bulls & Bears Locked In A Tie...

Bulls and Bears were tied today as markets ended marginally lower in a sideways movement. There was almost no fundamental reasons behind the action we saw today, purely the last of the bears struggling with the new bulls, resulting in an almost neutral day backed by a volume surge. Even though the market didn't close up, the bulls have held their ground and still made a higher high and a higher low... a bullish sign. This struggle between the bulls and the bears may last a couple of days more before the market crawls upwards. Yes, I see this as a strong reversal point and that the bulls do have the strength to keep the bears at bay at last, however, I do not think we will see a surge upwards anytime soon but a gradual advance. This is due to the strained geo-policial and economical situation, so I am skeptical as to whether the market will resume the kind of bullish trend we saw previously even if the markets do continue up. Let's allow the market to do the talking...

Microsoft Shares (MSFT) Reaching A Bottom?

MSFT $27.83, +1.02%

Its certainly been a while since I last analysed MSFT. Now that I looked at it again, I see that it had been swept by the merciless correction wave since the last time I suggested that it has begun and completed a turnaround. Indeed, every stock is but a boat on the stock market ocean. Although the boat itself may have indicated an intention, the ocean can still move the boat along with it when a storm comes. MSFT has since fell to near the 200MA which I mentioned before to be the last line of defence for MSFT. I do see a glimpse of hope today as selling volume begins to dry up as a small reversal occurs. It seems as though MSFT, along with the market, has found some kind of support or bottom even though there still is some distance to its 200MA. If MSFT rallies today on high volume, it may indicate the beginning of another rally for MSFT. Let's watch and see.



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Morning Star Signals Formed By Major Indices!

FUNDAMENTAL ANALYSIS
Looks like the US Markets and world markets are one family now... one can affect the other. With the pull up in the world markets, the Dow rallied 157.18 points, posting the greatest single day gain since this rally begun in July 2006. Japan's Nikkei stock average closed up 1.22 percent, Britain's FTSE 100 regained 1.32 percent, Germany's DAX index rose 0.92 percent, and France's CAC-40 was up 0.97 percent. Internals were also great with advancers leading decliners by a mile. This rebound is therefore strictly a technical rebound based on investor sentiments...so, lets go look at the technicals...

TECHNICAL ANALYSIS
Today's rebound was surprising and not surprising all at the same time. What was surprising was that I did expect the major indices to test their 200MA before rebounding in my post yesterday and seriously, I did not expect to see it so soon. What was not surprising was these; First, I did mention that both indices are coming up against their psychological support level of 12000 and 2330 in my post 2 days ago. Both the Dow and Nasdaq bounced off these levels. Secondly, I also mentioned that my proprietary option swing trading system, the Star Trading System didn't support this correction with any trades to downside and suspected that this correction is not going to last. However, only one thing failed to please me today. The volume. Major reversal points should be supported by growing volume, like what we saw back in July 2006 when the markets turned into this bull trend. However, yesterday's pullup ended in declining volume instead indicating that there was more interest in the correction than in this pullup. This is not to say that this pullup does not count as it did form the powerful morning star candlestick formation in oversold position at support level. This is a very powerful combination that usually results in a good reversal. So, how would I make sense of this? I would say I want to see a followup on growing volume tomorrow in order to confirm this morning star formation.



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Stock Market Landslide Continues...

FUNDAMENTAL ANALYSIS
In this fear driven market, few people ever pay attention to any fundamentals except everything negative. Markets continue to slide today carrying with it the early morning buyers. Early signs of buying are quickly erased by a merciless and swift mob of sellers while short sellers laugh their way to the banks. Well, in all market conditions, there are always an equal number of winners and losers in terms of dollars and cents. There will therefore always be cryers and laughers. It is again difficult to attribute this fearsome correction to what Ex-Fed Chairman Alan Greenspan said about possible recession by the end of the year as global markets too lost over $1.8 trillion in a week. It was like the doomsday has arrived for the global stock markets. Well, corrections always make people feel like its doomsday and that there are no end to it. Normal traders should already be out and await a future rebound and sophisticated traders should already be in the short.

TECHNICAL ANALYSIS
No surprise today as markets extend their losses. All short term indicators still suggest a strong downwards momentum even though the Dow and the Nasdaq composite are both in their short term oversold condition. Well, as my mentor used to say, the Bulls take the stairs and the Bears jump out of the window. Both indices are coming up against the short term psychological support level that I suggested yesterday. This correction seems to reflect the same patterns we saw back in the May 2006 correction and with mid term indicators still showing a lot of room to downside, I believe we will see a breach of the short term psychological supports to test the respective 200MA support. Option traders should already be holding on to puts or in negative delta positions by now and join the rank of the laughers.

A New Week... Life Goes On...

I paused blogging here since last Wednesday due to a sudden family tragedy... it happened right on the day the Dow made the 3.29% jump (yeah, its got nothing to do with the stock markets really). My grandmother was down on lung cancer and is now in terminal care.

Really makes me think a lot about life and money. My grandmother has been a really wonderful lady who gave birth to one of the most powerful families here in Singapore. Wealth and luxury was certainly not of lack but in the end, her only hobby, smoking, landed her in terminal care at an age which commonly has another 10 more years to go (81 years old). Wealth and health must certainly go hand in hand. Without health, wealth means very little. I hope all traders and investors take care of your health so that you may enjoy the wealth that comes.

Last week was a surprising week to most traders as the Dow collasped 4.22% and the Nasdaq Composite avalanched 5.85%. In fact, global markets corrected everywhere and attributing it merely to the china market is a little pushing it too hard. Global instability has come to a point where it must show up in the stock markets. So far, nothing that happened in the world; Iranian crisis, 3 carrier battle groups dispatched to the middle east, North Korean nuclear crisis etc... has showed up in the stock markets. It really made me feel like the stock markets are hosted on Mars where matters on earth, except for how oil is being traded, affects it.

Both the Dow and the Nasdaq composite has breached their 100 days moving average and looking very bearish. I see short term psychological support for the Dow at 12000 and long term support on its 200 days moving average of about 11750. As for the Nasdaq composite, I see short term psychological support at about 2330 and long term support on its 200 days moving average of about 2285.

There are no signs that this correction is coming to an end yet, however, a strange thing did happen. Usually, with a correction this big, my proprietary Star Trading System would be pouring out an avalanche of bearish trades which we profit using put options, however, this time round, there was almost no signals to downside coming from the system. Does it mean that this correction is not going to last afterall?



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