Stocks Flat On Favorable GDP Numbers

FUNDAMENTAL ANALYSIS
The Dow closed flat today as GDP numbers turned out weaker as expected. That was also why the Dow still opened higher despite the number being released before market opened. Even though a lower GDP is largely expected, some profit taking still became evident later in the day. SO, what exactly is GDP?

GDP measures the dollar value of all goods and services produced within the borders of the United States, regardless of who owns the assets or the nationality of the labor in producing that output. Healthy GDP growth is usually between 2.0% and 2.5%which translates into strong corporate earnings, which bodes well for the stock market. A higher GDP growth leads to accelerating inflation, while lower growth indicates a weak economy. Therefore, depending on the prevailing situation, a higher GDP may not bode well for the economy or the stock market.

Today, not only does the GDP number point towards lower inflation, the detailed data also showed that consumer spending has increased, which is great for the economy.

Overall, the GDP numbers with a lower jobless claim points towards a healthy, growing economy and provides a good bullish undercurrent to the stock market.

TECHNICAL ANALYSIS
Well, no surprise today as the Dow moved sideways in order to form another step in the Staircase formation. Volume is also growing healthily. I remain bullish.

Stocks At New Highs Once Again!

FUNDAMENTAL ANALYSIS
After opening low on the 6.5% Shanghai stock market sell off, the Dow really recovered and rallied 111.74 points after the FOMC release. Investors are quick to realise that, if a 8.8% sell off in the Shanghai market lasts merely one day, then a 6.5% rally certainly wouldn't scare chinese investors into a sustained sell off. On top of that, the Feds have not only kept rates unchanged, they have also suggested that inflation risk is reducing. This again sparked hope for a rate cut in the (near?) future, sending all major indices flying. It seems like with the housing sector coming under control, everything else seems to start falling into place. Tomorrow, is another critical day with the GDP release just before market opens and will no doubt show it's impact on the pre-market futures. I suspect the bullishness will continue and will show up in the GDP numbers as well.

TECHNICAL ANALYSIS
The Dow has regained it's staircase formation again at last! This is the second time along this rally that the Dow has given us a bear scare. Once on 10 May and the other time on 24 May. With the Dow rebuilding momentum off the short term overbought region and a rising volume as support, I see this rally has more to come... let's enjoy it while we can.


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RED ALERT!

The chinese stock market has tumbled more than 6% at the time of writing and we might see another 27 Feb happening tomorrow in the US Market. However, this is definitely temporary and traders might want to think about loosening up on stop loss or go on a longer trading horizon.

Calm Before The "Storm"

The Dow closed sideways today as I have expected before tomorrow's FOMC release. This is somewhat of a tradition no matter how predictable the FOMC release is going to be. Looking at the internals, advancers still led decliners by 2 : 1, indicating a bullish undercurrent ahead of the FOMC release. What worries me most about tomorrow's move is that, at the time of this writing, the Chinese Market is already down by more than 2%... will it cause another Feb 27 ditch?

A Rocky Week Ahead

Welcome back from the Memorial Day Long Weekend!

Well, all real traders appreciate long breaks and only losers hate long breaks. :)

The Dow ended the week last week as the first negative week since the rally begun in April. Looking at the weekly charts, the Dow is down a slight 49.25 points last week... not a lot, but enough to indicate weakness at such mid term overbought levels. The Dow's mid term technical indicators are also showing a teeing off of upside momentum and an entry into mid term overbought. However, the Dow is all used to rallying in the overbought region, so all these may still mean nothing. What is going to be critical is, this is going to be a week full of very important economic releases like the FOMC release and the GDP (please see http://www.mastersoequity.com/option_trader_hq.php for a free weekly economic calendar) and is expected to be a week of high volatility.

One negative week definitely do not tell any tale but another negative week certainly will. Tomorrow is likely to be a pretty calm day as it always had been before every FOMC releases... will it be the calm before the storm?

Profit Takers Floods In

FUNDAMENTAL ANALYSIS
The Dow was up as high as 13522.60 points early in the trading session today following the biggest surge in new home sales in 14 years by 16%. Profit takers needing a "high enough" point as an excuse to start retreating from the market started pouring in almost immediately, bringing the Dow back down to 13441.13 by the end of the day. The surge in new home sales seems to suggest that the market is beginning to consolidate at the current levels strongly, forming a support and a possible "bottom" to the housing market correction so far. This is an extremely important and encouraging data as the falling property market remains one of the biggest threat to the economy and the stock market. It is a good thing the profit takers are taking the opportunity to exit so that a new wave of buying interest may enter the market.

TECHNICAL ANALYSIS
Once again, the Dow has broken it's staircase formation in a similar fashion as what it did back on 10 May. The drop today has also helped take the Dow off being short term overbought and could set the stage for more upside. Tomorrow is going to be a critical day again. If the Dow should rise tomorrow significantly, the staircase formation could be resumed like it did back on 11 May, if not, then we could be witnessing the start of the long awaited correction. Even if the correction should continue, it should find support somewhere around the 30MA level. It is a tricky market to do anything new now and definitely not an area where one should start accumulating... yet.


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Some Retirees Should Stay Retired

FUNDAMENTAL ANALYSIS
As if sick and tired of seeing the market so bullish, a retiree should somehow make some unresearched comments and put the market into a slight panic. What was shaping up to be a great day and a historical high for the Dow, ended with the Dow down marginally by 14.30 points, taking back the day's gains. Well, some retirees should just stay retired and not make comments on a stock market on the other side of the world which he does not understand at all. Having been here in Shanghai for the past 3 years, I would say that the china bubble will come, in the same fashion ALL new markets do, but there is still a LONG way more to go, why? That is because the China market is now public money driven and because so many people has made money in the markets, more and more people are entering the market. There are still A LOT more population who are waiting in line to enter the market no matter what the government does or what the inflation numbers says... they just want to make money. PERIOD. The bubble will burst after new money runs dry... which I would say is a long way more to go with such a huge population.

TECHNICAL ANALYSIS
Another sideways, downwards inclined day for the Dow. Since the rally begun back in end of March, we have not seen a straight 3 days decline. Even though the declines are marginal and should be considered sideways movement, they are declines all the same. However, there remains no indications that the staircase formation is coming to an end. We should see the Dow make a new high tomorrow or Friday, if not, then we should be prepared to go delta neutral again.


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Dow Continues Sideways

FUNDAMENTAL ANALYSIS
The retreat in crude oil prices today by $1.30 caused a retreat in the energy sector which left the market in a stalemate. The Dow pulled back marginally by 2.93 points as there were no important economic release to base a rally on. Tomorrow's crude inventory release (please refer to http://www.mastersoequity.com/option_trader_hq.php for economic release calendar) should shed some definite light on whether crude oil will rebound or stage a correction from here.

TECHNICAL ANALYSIS
The Dow moved sideways today as it continues to make another step in the staircase formation. Nothing have changed so far as the Dow continues to rally comfortably in the short term overbought region.


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Oil Breaks $66, Lifts Nasdaq

FUNDAMENTAL ANALYSIS
All eyes were on crude oil prices today (maybe because there was no major economic release todayto focus on?) as oil surged 2.1% to $66.27/bbl, putting some last minute pressure on the Dow. Energy stocks, however, got a boost from the higher crude price and lifts the Nasdaq Composite by over 20 points today. It is no surprise that crude oil prices have been rising all summer, that is why we do not see a crazy rush out of the market at all. Looking ahead, tomorrow's crude inventory might be the deciding factor as to whether crude would move higher or stage a little retreat. My bet is that inventory might be lower than expected due to higher summer consumption. Well, numbers always have a way of surprising us and I would not put money on it until it comes to be.

TECHNICAL ANALYSIS
The Dow traded sideways today as it prepares for yet another step in the staircase formation. The Nasdaq composite seems to also be jumping in on the bullish bandwagon at last and that might give an overall boost to the rest of the indices, that is why we should see more gains from the Dow soon. Well, no surprises today with nothing out of the ordinary. Market remains bullish.

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The Bulls Rage On...

Welcome back to the market after a relaxing weekend.

The Dow gained 1.73% or 230.31 points last week alone and the bulls still look like they are raging on endlessly. I identified a couple of points where the Dow might retreat from last week but never happened. In fact, I have never seen such a strong rally in the Dow since 1995! Even the 2003 rally did not go up like a nuclear engine rocket like it did this past 9 weeks.

The only question remains to be answered is, how much more?

This is a very difficult question which even I find it hard to answer. All our short and mid term indicators are suggesting a new bullish swing coming along... while I am skeptical, I see no reason to doubt and miss the game. This is a good time to have a good grip on the rein and get ready to go delta neutral at the first signs of weakness.

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Bulls Take a Breather In Oil Surge

FUNDAMENTAL ANALYSIS
The Dow took a breather today, ending a 4 days rally with a 0.08% drop of 10.81 points as oil breaks the $65 per barrel level. Oil has been trading at a relatively low level coming into summer so a price surge is really not strange to see. Apart from that, most of the action today are actually technical driven as some investors take profit off the table. Let's see what the technicals say...

TECHNICAL ANALYSIS
The Dow recovers it's staircase formation today as it traded sideways on low volume. It sure seems like the 10 May drop was a fake out and that the correction in the Nasdaq composite doesn't seem like it is going over to the Dow at all. Short term momentum for the Dow has also started picking up again. I hope the Dow muster enough energy to bring the Nasdaq composite up quickly or else it might be the one to get brought down by the Nasdaq composite instead. The Nasdaq composite's correction should also be coming to an end soon as it finds support at its 30days MA.


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Bulls Continues To Roar!

FUNDAMENTAL ANALYSIS
The Dow closed yet another historical high, lifted by blue chips across the board. Citigroup surged 4.02%, JNJ surged 1.99% and MSFT up 0.55%. Even though the market has staged an impressive rally so far, blue chips continue to remain fairly unmoved, that has caused a buying spree in the blue chips at last, giving further momentum to the rally. Let's see how far the blue chip rally can go.

TECHNICAL ANALYSIS
The Dow surged today, covering yesterday's lost grounds to close yet another historical high. This was truly a big surprise to me as I never expected the blue chips to catch up like this. Tomorrow is going to be critical. If the Dow opens up and trades up strongly tomorrow, we could witness a continuation of the staircase formation, cancelling the effects of the Shooting star formation yesterday. Truly a tricky time to put on anymore positions.


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Housing Sector Beat The Bulls Back Down

FUNDAMENTAL ANALYSIS
What was shaping up to be a great day in the markets in the morning got beaten down by 1pm to end the Dow only 37.06% down. The bulls were active all morning until a confidence survey compiled by the National Association of Home Builders unexpectedly slid three points to 30 in May, matching the 15-year low set last September. Investors have been waiting eagerly to see even the slightest signs of recovery in the housing sector and were disappointed again. A weak housing sector affects many industries across the board including the financial sector. On the high side, the CPI numbers checked in favorably again at 0.2%, pulling the year/year rate down to 2.3%, which is closer to what the Feds like. We are in a market which is extremely sensitive to rate related news while bathed in ever weakening fundamentals. There will definitely be more room to upside due to inflation coming under control... but something really needs to be done in order to ensure that the economy does not slide into recession...

TECHNICAL ANALYSIS
A clear and long "Shooting Star Signal" was formed today on the Dow. A Shooting Star Signal is a candlestick signal with a small body at the bottom and a long tail on top. Such a signal is formed when the stock goes up really high during the day and was beaten back down by the end of the day, signifying that the bears are taking charge. Where does a shooting star go? Down of course. A shooting star this high up in an overbought rally on a volume surge is an extremely strong bearish sign. In fact, it's reverse cousin, the Dragon Tail Formation on 14 March started this rally. If I see deterioration tomorrow, then it definitely is time to get out of my delta neutral standing and get into the bear mode. However, I do not yet see a sustained bear trend coming to be yet. The Dow could test the 13300 level in the very near future, which incidentally happens also to be the 30MA level, making it an important level to hold support. Let's see what happens next.

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The Dow Undecided Ahead Of CPI Release

FUNDAMENTAL ANALYSIS
Investors continue to be extremely cautious ahead of tomorrow's Consumer Price Index release (please see Option Trader HQ for stock market release calendar). Trading volume continues to drop as the Dow fails to close a new historical high for the 3rd straight day today. The Consumer Price Index tomorrow shall shed some defining light on the newly rekindled inflation fears. The Consumer Price Index (CPI) is a measure of the average level of prices of a fixed basket of goods and services purchased by consumers. This monthly figure is widely followed as an inflation indicator. The growing inflation fears along with widespread sentiments that it is about time rally ends, has contributed to decliners leading advancers by 2 : 1 today. There is no telling what tomorrow's CPI numbers might say so I hope everyone's at least delta neutral hedged by now.

TECHNICAL ANALYSIS
The Dow continues to move sideways as volume continues to drop. Seriously, I hope to see a decisive pullback more than a switch to a neutral trend like it is now. A decisive pullback usually lead on to a rebound and a continuation of the rally but a switch to a neutral trend usually leads on to a subsequent switch to a bear trend. That is the trend behavior of the market but I would not put the hammer down until I see actual evidence of where the market is heading. I have taken a portion of my money off the table and went delta neutral on the rest in order to hedge against risk.


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At The End Of The Rally?

The Dow has had a great run since the dragon tail formation (please read my post on 14 March) on 14 March and have gained more than 10% since. This is an amazing rally at a magnitude that I have not seen since 2003. However, despite all the good news that seems to hit the headlines daily, this rally looks like it has truly reached the end, or very very near the end. All ny technical indicators on all time scales are displaying weakness across the board, along with the Dow breaking off from it's staircase formation, tells me that the rally is about done. If the Dow goes into a decisive technical correction from this point to about 13000 points, then there is a great chance for it to rebound and continue the rally. If the Dow decides to change trend and move sideways, then the rally could truly be done. Let's watch and see what happens this week.

The Dow Tumbles... At Long Last...

FUNDAMENTAL ANALYSIS
The wild bull shakes it's rider off at last today as the Dow tumbles 147.74 points in a single day today, shedding off 1.11% and 5 days of gains. In fact, this is the hardest single day drop since 13 March. Well, like I have said, the longer the rally, the harder the fall... looks like it is happening at last. US trade deficit opening to a 4 years high along with import prices rising 1.3% due to a weakening dollar has once again brought inflation fears to the front stage. The earnings season is also coming to an end. With no more explosive earnings to cheer investors onwards, it may be hard for this rally to continue. This may be the correction which so many have speculated about for so long.

TECHNICAL ANALYSIS
The Staircase formation in the Dow is shattered at last with the Dow hitting the ultimatum level which I set 2 days ago. My trend indicator has also indicated a definite shift in short term trend to bearish. These are definite signs that the correction that I am anticipating is here at last. I took the opportunity to take profits off the table today but not shorting the market... yet. This is because the long term bullish trend still remains intact, for now, and I would see a possible rebound at the 13000 level.

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Dow Breaks 13,350 Points To New Historical High!

FUNDAMENTAL ANALYSIS
The bulls are back today, pushing the Dow up to 13,362.87 points today, when the Feds decided to keep interest rates stagnant for the 7th straight time. Investors breathed a sigh of relieve and came back into the markets after being on the sidelines for the past 2 days. Falling oil prices also served as a catalyst to this bull rush. Indeed, this rally has gone on for much farther than most skeptical investors have expected. The longer the rally, the harder the correction... always keep on hand on the rein.

TECHNICAL ANALYSIS
Well, the Dow survived the 13,210 points ultimatum that I declared yesterday and faithfully made a new step in its staircase formation. Again, it is not a 100 points step that we used to see early in this rally but a relatively small 53.80 points one. Not bad considering how high this rally has gone. Volume is rising steadily, supporting the rally but I would be seriously keeping one hand on the rein of this bull as more and more of my indicators are screaming for the rally to take a break. For now, the technicals look good, the fundamentals are relatively encouraging and I do not yet see a real reason for the bull run to end... yet.

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Techs To The Rescue!

FUNDAMENTAL ANALYSIS
The Dow closed marginally down by 3.9 points today in a spectacular recovery off it's intraday low of -75.41 points today! Early profit taking has forced the Dow to open down and dive straight down below the 13300 point level, just when all hopes seems lost and that a full scale correction is at hand, a recovery in oil price to above $62 helped stage a small rally in the Technology sector which helped to liven sentiments across the board and lifted the Dow steadily throughout the day. This slight pullback also ended the Dow's 5 days rally ahead of tomorrow's FOMC release. The uncertainty that surrounds tomorrow's Fed release also explains why so many investors are taking profits today. Let's monitor how the sentiments go tomorrow. All in all, the numbers so far suggests that inflation continue to be in control and I would certainly expect the Fed to keep rates steady and to "continue monitoring".

TECHNICAL ANALYSIS
The Dow closed sideways today inline with it's staircase formation. Nothing seems out of sorts today and that some profit taking is normal at such levels. We saw the same "hangman" signal back on 19 April, which led on to another step in the staircase formation. There is only one concern though, that our momentum indicator shows a slight drop in bullish momentum. Such a drop makes a "hangman" signal very strong. I would make the 13210 points my final ultimatum on the Dow before I start going delta neutral and prepare for a correction.


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The Dow Makes New High On Mixed Market Action.

FUNDAMENTAL ANALYSIS
The Dow was up today by a significant 48.35 points on a pretty mixed market action. The Nasdaq composite was down marginally by 1.20 points, advancers only barely par decliners and trading volume retreated significantly. There signs tells only one thing... the traditional lethargy before every FOMC release. Uncle Ben is going to talk about rates again this coming Wednesday. The retreating oil price was probably what caused the tech heavy Nasdaq composite to pullback into the red a little but that has certainly helped the Dow gain more bullishness. Trading action is expected to be thin and sideways tomorrow ahead of the FOMC and then, we shall see how investors react to the release.

TECHNICAL ANALYSIS
The Dow was up again today on declining volume. Technically, declining volume at this juncture always suggest that the bulls are running out of steam, HOWEVER, with just 2 days to FOMC, this decline in volume may be fundamental driven instead and I would treat it with a little bit of doubt. One thing that I may really be concerned about is that the gain today of 48.35 points seems to be a new step in the Dow's staircase formation. In this aspect, we are witnessing a steady shortening of each step since the formation begun and that also hints to this stage of the rally coming to an end soon and a pullback seems imminent. The first step in its staircase formation on 3 April took the Dow up 128 points, the second step on 16 April was up 108.33 points, the third step on 20 April was 153.35 points, the fourth step on 25 April was up 135.95 points, the fifth step on 2 May was up 75.74 points and today, we clocked in at 48.35 points. I would certainly be going delta neutral again at the first sign of a pullback.


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The Dow Heads Into FOMC Week Again.

The Dow was up again last week for a full week gain of 143.68 points or 1.10%. On the weekly scale, I see that the advance is already slowing down even though volume remains relatively stable. Over the last 3 weeks, the Dow has gained 349.85 points, 158.96 points and finally 143.68 points last week in a decelerating growth. This is totally natural in the overall scheme of things and is the way all markets behave. All markets move forward in a series of contracting and expanding movements, like ocean waves.
Many people ask me if the bull will run on forever? That the market look so bullish now that it looks invincible. Well, common sense mathematics told us that, sadly, no. The market will NOT go up and up... why? Well, if the market move forward like it did over the last 2 weeks at an average gain of 150 points a week, would we see the Dow gain 7,800 points after a year? The Dow has existed since 1916 and has gained an average of only 145 points A YEAR! So, how long do you think the Dow can sustain 150 points gains without some really cruel pullback? ;-)

So, the reality is, the Dow will pullback and the longer it takes to happen, the more severe the pullback will be. Period. All traders need to have a means of detecting such a pullback early in its development so that sensible hedging can be performed.

I continue to be bullish, as you can see from my sentiment picture on the right, but I am putting on hand on the rein right now just in case.


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S&P Beats 1500 As Dow Makes New High!

FUNDAMENTAL ANALYSIS
The raging bulls continue to scale the mountains as S&P500 beat the 1500 point once again since late 2000 and the Dow made another new high of 13241.38. The economic data continues to paint an extremely optimistic picture of controlled inflation and steady growth. That, along with the great earnings so far, continues to fuel the bulls ahead. Initial claims have fallen also fallen to the lowest level of the year. Initial claims is an index that tracks the number of people filing first-time claims for state unemployment insurance. Investors use this index's four-week moving average to predict trends in the labor market. The lower the number of claims, the stronger the job market, and vice versa. The bull so far has been fed by great earnings, great data and great technicals and there may be more to come.

TECHNICAL ANALYSIS
Nothing very surpring today as the Dow inched up slightly, faithfully following the path of the staircase formation. There are no abnormalies in the move today and I would expect another 2 to 3 days more of such small, sideways days before we can determine if the Dow is bullish enough to form another step in the staircase formation.


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Dow Makes Historical High After Short Bull Break!

FUNDAMENTAL ANALYSIS
The Dow closed yet another historical high today at 13211.88 points, breaking the important 13200 level in one clean shot. Breadth reading was also fantastic as advancers led decliners by a mile. Great earnings releases, retreating oil prices and a surge in new jobs creation in April, all served as catalysts to help investors decide that the bull run isn't quite nearly over yet. So far, the economic data and earnings release has been pleasing and hints at a slow by steady growing economy and that is what all markets need for long term growth.

TECHNICAL ANALYSIS
Interesting market action today. Yesterday, I gave the Dow it's final ultimatum to go up and today, at last, it kept the staircase formation intact and went up as I hoped it will. I had hoped for the Dow to go up by more than 50 points today in order to keep the bull run intact and, yes, today the Dow went up 75.74 points to close yet another historical high. What's more interesting is that the Nasdaq composite, which looked to be going down over the past few days and might affect the Dow, joined into the rally today and gained 1.04%. Well done! Bullish momentum has picked up slightly but looks obviously weaker than before, which is natural after such an amazing run up. We will continue to monitor for the first signs of a pullback as the market develops.


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Dow Gains On Resilient Manufacturing Numbers

FUNDAMENTAL ANALYSIS
The Dow gains another 73.23 points as the ISM manufacturing index bounced back in April to 54.7, gaining from 50.9 in March. The ISM Manufacturing Index is based on surveys of 300 purchasing managers nationwide representing 20 industries regarding manufacturing activity. It covers indicators such as new orders, production, employment, inventories, delivery times, prices, export orders, and import orders.It’s considered as the king of all manufacturing indices. Readings of 50% or above are associated with an expanding manufacturing sector and a healthy economy, while readings below 50 are associated with contraction. A figure below 40 is traditionally recognized as indicating a recession in the economy as a whole while a reading above 65 indicates strong growth. So, a 54.7 does indicate a slowly growing economy, which, of course, is good news.

TECHNICAL ANALYSIS
The Dow may have gained 73.23 points today but technically, it is still just another sideways day in the flat step of its staircase formation (please read post yesterday). Even though the Dow was not down todya as I have feared yesterday, it is not much better as the entire day traded within the trading range of yesterday. Tomorrow is going to be a critical day for the Dow. It is indeed due for a slight pullback due to it's weakening advance and slow down in bullish momentum in our short term MACD. However, long term bullish momentum is still strong and that makes it possible for the Dow to still persist upwards. What shall decide? Tomorrow shall decide. If the Dow ended down tomorrow, then it is all the evidence I need to go delta neutral for now. If the Dow is up another 50 points or more tomorrow, then I will go with that the staircase formation is still intact.


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