Stock Market Analysis

Tuesday, July 31, 2007

The Dow Continues Sideways

Much to our surprise, the Dow failed to stage a rally yesterday but instead lasped into a sideways day as it traded and closed within the trading range of the last 2 days. It was really surprising especially with such a strong opening and pre opening futures. What wasn't surprising was the fact that the Dow remains a feet away from its weekly 30MA line, which we expect the Dow to reach before it can stage a credible, sustainable rally. It looks like it is happening. The next few days will be critical... the Dow is still at a strong support level and has traded sideways for 2 days. Will it continue to trade sideways while waiting for the weekly 30MA line to catch up (which isn't very far away now) or will it ditch further in an attempt to reach the line faster?

Monday, July 30, 2007

The Rebound Begins?

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The Dow gained 92.84 points today in a spectacular come back, kicking off the week on a high note. Much of the gains has been due to a sharp 1.2% rebound in the extremely influential Finanical sector. The Financial sector was beaten down last week amidst fears of possible credit crunch. Helping the market along is a slight retreat in crude oil prices too. Apart from these, there wasn't much significant events driving the market, which brings us to the technical aspects.

Today's market action didn't come as a surprise as I mentioned yesterday that the Dow should start to level off and trade sideways a bit for the weekly 30MA line to catch up and then stage a full scale rebound. Looks like it is happening at last and more significantly, it is happening right on top of the 13250 support level, which has been a significant support level since June 07. I will be watching for a possible entry soon.

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Sunday, July 29, 2007

Will The Dow Continue To Fall This Week?

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My take is that it's drop is almost, if not already, done. Remember the weekly 30MA line that I have been talking about for weeks? Last week's drop of 585.61 points has brough the Dow very close to its weekly 30MA line and ready for a rebound. This is also supported by a huge surge in the VIX and the Dow touching the 13260 short term support level while it's short term stochastics entered overbought region. All indications seems to support a rebound at this level. However, as we all can see, the weekly 30MA level is somewhere around the 13000 level... does it mean that the Dow needs to visit 13000 in order to rebound? Yes and No. The Dow can start to trade sideways for a few days in order for the weeklyu 30MA to catch up before staging a rebound or, yes, it could just go straight down to 13000 before rebounding. Both scenarios warrant a hold if you are long on the market and a hold if you have not entered yet. Traders should see a definite rebound before entering.

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Thursday, July 26, 2007

DOWn Over 300 Points!!

The Dow plummetted 311.5 points in a single day today! The last time we had such a huge, deep impact was back at the Shanghai market plunge of 27 Feb when the Dow dropped over 400 points. This plunge was accompanied by a huge volume surge, which could probably signal a selling climax. What's obvious now is that this plunge certainly took the Dow back down nearer to the weekly 30MA, which we have been watching this whole month, just as the Shanghai market plunge did. I do not see a full scale bear trend coming up and I maintain my view that the Dow would trade within the sideways channel that I mentioned yesterday.

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Wednesday, July 25, 2007

Dow Gains Ahead Of GDP Release

Friday is going to be a heavy weight day with the GDP and Consumer Sentiments release. The Dow gaining over 60 points in one day today seems to indicate a strong bullish sentiment on the releases on Friday morning. 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 and is the most comprehensive measure of the performance of the U.S. economy. Healthy GDP growth is between 2.0% and 2.5% (when the unemployment rate is between 5.5% and 6.0%). This translates into strong corporate earnings, which bodes well for the stock market.

No surprise today as the Dow gains a little, within yesterday's trading range as it continues to play within the channel that I defined yesterday. I don't think we will see any serious breakouts anytime soon.

Tuesday, July 24, 2007

The Dow Submits To Might 14K!

There was no surprise in what the Dow did today. As I mentioned yesterday, all technical indications shows weaknesses on all fronts, the kind of weakness that will take a "miracle to break the 14000 resistance level" and it turned out that we are right again. The Dow slided a spectacular 226.47 points in a single day, making an 9 days low. So, is this drop enough or is there more to come? Well, we found the answer by looking at the weekly charts... an answer which we have been talking about for weeks... the Weekly 30MA. Never is the Dow able to trade much higher this far away from its weekly 30MA line and this time round, it is not making an exception. I would think that the Dow would either trade sideways for the weekly 30MA line to catch up or correct down to the weekly 30MA line before rebounding. The latter would feel like doomsday as the Dow needs to drop a grand 750 points! I would think that the sideways scenario is more possible. By sideways, I would speculate that the Dow would trade within a 13510 - 13970 channel. I hope you guys are already fully hedged.

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Monday, July 23, 2007

Crude Oil Corrects...

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Crude oil fell slightly today, spurring a small bout of buying in this completely "newsless" day, lifting the Dow a grand 92.34 points. The internals, however, don't seem to tell the same 92.34 points gain story. Decliners surprisingly led advancers! Yes, on a day where there were more losers than winners, the Dow gained over 90 points, suggesting that those stocks that gained, gained by A LOT! We all know what follows such strong surges, don't we? I seriously suspect we are looking at a fake out today.

Not surprising to see a little buying after a strong drop of over 100 points. The Dow formed a small candle within the body of yesterday's huge closed candle, basically a day of no significance. The 14000 resistance level still looks strong, causing a lot of uncertainty in the market. There are no clear technical indications that the 14000 level is going to be breached anytime soon... low volume, declining momentum, trend indications weak... its going to take a miracle to break the 14000 level tomorrow.

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Sunday, July 22, 2007

The Dow Continues To Struggle At 14000

As I have expected, the 14000 points resistance level proved to be a strong one and one that caused a huge 149.33 points depression in the Dow. Looking at the internals last Friday, individual stocks fell by a greater magnitude. As I have mentioned before, trading this high above the weekly 30MA makes the Dow extremely short term overbought and will only lead to a correction back down to it and it looks like it is happening now. Immediately support level is probably at the 13650 level, which looks like a shallow decline. This week's prime mover will be the GDP numbers. Will the numbers indicate a growing or slowing economy this time round? Only this Friday will know. (see Economic Calendar)

Thursday, July 19, 2007

The Dow Stopped At Critical 14000 Resistance Level...

It has been a pretty bullish trading day whole day today as the Dow opened high and maintained its pace throughout the trading session despite all kinds of lacklustre releases that didn't satisfy anyone. Sure, initial claims are at 2 months low (2 months, what kind of comparison time frame is that??), payroll is rising steadily (and so is the de-valuation in the US, which is quicker than which?), some companies are turning in great earnings (does that mean the rest of the earnings will be great?), such news serves only to tickle, not satisfy. On the down side, Crude oil continued its rally as it breaks $75 per barrel and Bernanke with all his hawkish and overly political comments (man, when did our econs teacher teach us to talk like that???) continue to keep the full passion of investors outside the flood gates. Overall, this is a day which the bulls claimed victory but in the face of no concrete, satisfying news and a strong 14000 resistance level that has stopped the Dow's advance for a 4th straight day, it may take more than we think to keep this rally going.

Wednesday, July 18, 2007

The Dow Ends 5 Days Streak

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The Dow ends its 5 days winning streak under heavy profit taking as CPI numbers match analysis expectations. Even though CPI numbers matched analysis expectations, it is a rise nonetheless and left investors disappointed and wondering if inflation is truly under control. 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. The monthly reported changes in CPI are widely followed as an inflation indicator. Generally, a higher inflation figure offers support to the dollar as it suggests that US interest rates need to rise. That is what investors fear most now. However, we do see a bullish undercurrent as buyers stepped in during the last hour, lifting the Dow off its deep intraday low.

The Dow ended in a huge hangman signal today. A hangman signal is a classical bearish signal that needs to be confirmed by a bearish followup. It is highly probable that this signal will turn the Dow down to the 30MA level as volume has been rising daily without any significant gain in the Dow, suggesting the presence of a resistance level. Certainly a tricky time to be trading.

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Tuesday, July 17, 2007

The Dow Gains Again On Favorable PPI

The Dow is up again today by a marginal 20.57 points as early optimism due to a favorable PPI met with fierce profit taking towards the end of the day. The total PPI dropped for the first time since January, indicating a retreat in food and energy prices. This is definitely a great news especially with the FOMC release just round the corner. However, looking at the Dow technical chart, we see that the rally is indeed weakening over the days with smaller and smaller candles being formed. The huge surge in volume today also failed to bring the Dow significantly higher, indicating a possible short term ceiling. I see the 14000 level as a significant resistance level and a retreat from this level is not only acceptable but a welcomed move as the Dow is indeed somewhat short term overbought.

Monday, July 16, 2007

The Dow Makes New Highs Ahead Of FOMC

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What a day! The Dow gained 43.73 points after the NY Empire State Index beat estimates by a mile, starting a day of strong buying amidst resilient profit taking. The NY Empire State Index is a seasonally-adjusted index that tracks the results of the Empire State Manufacturing Survey. The survey is distributed to roughly 175 manufacturing executives and asks questions intended to gauge both the current sentiment of the executives and their six-month outlook on the sector. With investors further assured of economic growth, tomorrow's PPI numbers will give a preliminary look at the inflationary pressure. Investors will no doubt love a retreating number tomorrow.

The Dow continues a rather dangerous climb along an extremely steep cliff today as volume continues to retreat steadily indicating declining interest in the rally. If the Dow should tee off and trade sideways for a couple of days before the next big gain, then it would have formed a new staircase formation and that would give it a strong reason to go further but if the Dow should continue to climb steeply like that, I am afraid with the declining volume, we could see a significant contraction soon.

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Sunday, July 15, 2007

The Dow Flies Ahead Of Schedule!

Not that there is any real schedule that the Dow follows but that we expected the Dow to move sideways a little bit more for the weekly 30 MA to catch up before staging a full scale rally. Last week's action came as a bit of a surprise as the Dow gained 295.57 points in all. Such a quick break from the weekly 30MA can be a dangerous thing and can even be a bull trap on its own. Looking back at the most recent time when the Dow rallied way before the weekly 30MA caught up on 10 May, led to an almost immediate correction back down and beyond the weekly 30MA line. So, this is not the time to get overly optimistic yet, especially when we are up against a very heavy weight week (see economic calendar ) with a lot of uncertainty. It is expected to be an extremely volatile week ahead with the PPI, CPI, FOMC and option expiration all lined up in one week.

Wednesday, July 11, 2007

Stocks Rebounds...

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The Dow staged a rebound today like it did the last time it ditched on 20 June. It is certainly not unusual to see some accumulation after such heavy selling. There didn't seem to be any convincing market movers today except for some take overs, which has been happening throughout the year, and comments that Bear Stern's hedge funds will unwind in an orderly fashion. On the downside, we have crude inventory lower than expected for a second straight week, rallying crude oil prices even further. Crude oil prices will certain put some pressure on the market should it continue to move higher.

The Dow looks like it is repeating the exact same pattern it did the last time it came so close to new highs on 20 June. One big drop, followed by one recovery day and then the definite drop down to the bottom of the channel. I maintain the same assessment I had yesterday.

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Tuesday, July 10, 2007

The Dow Decides...

It seems like the Dow is playing to the "Weekly 30MA Catch Up" game that I have been talking about for weeks afterall. It did an about turn right at the top of it's sideways channel today, correcting down 148.27 points, continuing it's sideways movement while the weekly 30 MA continues to catch up with it. Technically, the Dow is overbought on a short term basis when it's 30MA on a weekly scale is far below it's weekly candles. Such cases warrant either the Dow making a severe correction down to the weekly 30MA level before rebounding or moving sideways until the 30MA catches up before resuming the rally. I see overwhelming evidence over the past 3 weeks that the Dow is going on the second mode. There is no evidence suggesting that the sideways channel will collaspe into a bear trend yet and thus no reason to speculate on that.

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Monday, July 09, 2007

The Start Of Another Rally?

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The Dow closed an inch higher by 38.29 points today as optimism surrounds the start of the second earnings season for the year. Bond yield and crude price pulling back slightly also helped to fuel some optimism in the market. In fact, with a week like this, having little heavy weight economic releases, a 38.29 points increase already sounds pretty reasonable as volume continues to be way below average. This earnings season is expected to be a positive one, mirroring the gradual pick up of the US economy. So, let's cross our fingers as they unfold.

The Dow is now right at the top of the sideways channel and a few points from a new historical high. Volume is weak as participation in the move continues to be unconvincing. Unless it does a surprisingly strong breakout to upside tomorrow, the Dow will simply correct back into the sideways channel while the weekly 30MA continues to close in. It is not likely for the Dow to stage a sustained rally with the weekly 30MA so far below it. It is time to be cautious.

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Sunday, July 08, 2007

The Dow Continues Our Game Plan

One more week has passed and the Dow has traded largely sideways still while the weekly 30 MA moves yet another step nearer. From the established long term bull trend and the price resilience over the past few weeks, I would say a rebound is highly possible when the weekly 30MA moves nearer to the weekly candles. There isn't going to be much releases to look forward to this week that will move the market significantly except for the crude inventory numbers. Crude oil prices have been rallying since June and still looks to be very strong. A sustained rally in crude oil prices would put pressure on production prices and the stock market as a whole. So far, the Dow doesn't seem to be greatly affected by it and the Nasdaq composite has taken a boost from it. How it will lead on to is certainly hard to predict in the face of such resilience.

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Thursday, July 05, 2007

So far so good...

The Dow has been faithfully playing along with our prediction of a channel trade so far while waiting for it's weekly 30MA to catch up with it. Being the independance day week, we also see a fair bit of lethargy in the market this week. The weekend is nigh again and next week shall decide if the Dow would continue along this sideways channel or breakout.

Monday, July 02, 2007

More Signs Of Economic Pickup!

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Stocks staged an encouraging rally today as the Dow closed up 126.81 points. A renewed wave of investor confidence flooded the market as bond yields begin to drop, mergers begin to pick up and the ISM index beat analysis estimates. The ISM index for June turned in at 56.0 with estimates at 55.0, which is the highest in 14 months! What does this mean? This means that the US Economy is expanding at the quickest pace in 14 months! A reading above 50 denotes an expanding economy and a reading below 50 denotes a contracting economy. Sound economic fundamentals are always the pillars of stock market expansion. To this point, I remain optimistic, for now.

The Dow established a floor for the sideways channel today with its rebound. It now seems obvious that the Dow might trade within a 13250 - 13700 channel until the weekly 30MA line catches up before a real, sustained rally can happen. However, this is not to say that it will not start to do so now. Now that we have the channel floor and ceiling established, a break above the ceiling on strong volume can be deemed as a breakout and the start of a rally.

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Sunday, July 01, 2007

Welcome To Independance Day Week...

This is going to be an independance day shortened week and a week with not many major release to rely on. The Dow gained marginally by 0.36% last week as it continued to move sideways on a weekly chart, waiting for the weekly 30MA to catch up with it. Like I mentioned a few days ago, there is 2 things the Dow will do right now. 1, wait for the weekly 30MA line to catch up whilst moving sideways or 2, do a minor correction back down to the weekly 30MA line. Looks like it is going on manevour 1 afterall. Let's see how the game play goes this week.