Dow Pulls Back After 4 Straight Gains

FUNDAMENTAL ANALYSIS
The Dow pulled back down slightly today at last to close 58.03 points lower. The Dow was actually trading a marginally higher until a pullback in crude oil price to below $66 started a pullback in the energy sector and hence the Nasdaq composite and then to the Dow... like dominoes. Looking at the big picture again, earnings are great and March Core PCE remained unchanged bringing the year to year rate to 2.1%, which is very close to the Fed's comfort zone of 2%. Core PCE, Personal Consumption Expenditure, is an inflation indicator based on a measure of the prices paid by people for domestic purchases of goods and services (excluding food and energy) and is a broader measure of consumer prices than the CPI. Rising PCE means rising costs of living, suggesting a rising inflation. With company earnings positive and inflation coming under control, there are no reasons yet to believe, fundamentally, that this market is going to turn drastically to a bear trend yet.

TECHNICAL ANALYSIS
The Dow continued to move along the path of the Staircase formation today with a slight down day. This is hardly surprising and is typical behavior of such staircase formations. However, if we do not see a 1% or so rise tomorrow, then the Dow may be in for an intermediate pullback all the way down and test the 13000 level. In fact, it could go all the way down to 12900 level before a rebound. If I see another down day tomorrow, it may be time to go delta neutral again. Remember, hedging your position may be troublesome but it is always worth it in the long run. Read more about how to hedge with options here.


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