Stock Market Analysis

Thursday, August 30, 2007

Mixed Mixed Mixed Day....

What a super mixed day with all kinds of mixed signals resulting in a mixed close. The Dow was down by slightly over 50 points and the Nasdaq Composite rose marginally by slightly over 2 points. Investors were literally tossed about helplessly in the waves of news today. Second quarter GDP rose at the fastest pace in more than a year (inflation worries comes), Uncle Ben's scheduled talk tomorrow (yes, we all know he is not going to cut rates yet...), surge in jobless claim to highest level since April (yes, many economist says that this is in line with the higher job creation numbers), Walmart took a slight hit after Evil-Lynch gave it a downgrade (not much effect we see), speculation that growth will slow for the rest of the year after such a surge in GDP (more reasons for the Fed to cut rates?), Dell surged on great earnings forecast... man, can we get more than these in just one day? I doubt Uncle Ben's talk tomorrow will do much to move the market but looking at the technicals, the market is indeed at a point which it needs to decide a significant move up or down...

Good News - The Dow didn't fail at the 30MA resistance line today
Bad News - The Dow didn't break above the 30MA resistance line today

This is the fifth consecutive day which the Dow has stopped short right at the 30MA line and that makes it very very VERY worrying. This, along with the fact that the Dow is now in short term overbought, makes a break above the 30MA line very difficult. The dark side is this... if the Dow fails to stage a break, it could laspe down and form a mid term bearish channel... which means more downside to come for the rest of the year! This is the point of reckoning...

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Wednesday, August 29, 2007

What A Come Back!


I mentioned yesterday that a slight pullback is expected at the 30MA resistance level and that 1 day plunges are never reliable and then today, we see the Dow come back almost all the way. In fact, if you look at the DIA, which is the ETF trading the DOW (or what I call the DOW sentiment indicator as most commoners tend to trade the DIA and not the DOW, giving an insight on what investors sentiments), it has more than recovered yesterday's plunge and has gone into the green!

While all these may be exciting, please try to remember that I mentioned yesterday that "these 2 days are critical". Yes, tomorrow remains critical and if we do not see the Dow break above the 30MA resistance level tomorrow, then the Dow can still laspe downwards into a bear channel. This is going to be a bumpy ride with the VIX making a new 4 years high recently. Expect volatilty to continue.

Tuesday, August 28, 2007

Dow Fails At Resistance Level...

What a day! What a D-I-S-A-P-P-O-I-N-T-I-N-G day for all investors. Rarely do we see such a huge barrage of disappointing news coincide in one day. The Dow is down 280.28 points in a single day on 3 main reasons : 1, Plunging Consumer Confidence Numbers. 2, A series of bank downgrades casting shadow on the credit crunch. 3, Fed's unwillingness to take any significant action (rate cut?) to relieve the current credit situation. All of these occurring after such a strong run up last week and a strong resistance level gave investors all the reason to take profit. I seriously don't know what the Fed is brewing in their secret cauldron but whatever it is, it better be done quickly....

Well, like I said yesterday, do not be surprised if the Dow pulls back a little in the face of the resistance level. Even though 280 points is not really a "little" but in the face of the overall mid term trend, it remains acceptable. This huge plunge is also strangely backed by only an average volume. This suggests that the majority of the investors out there are still holding on and watching what happens next. Indeed, one day moves in the Dow is never reliable. In fact, I tend to look at a 2 days time frame more and more these day. That said, the Dow does has the potential to really laspe into a long term bear trend. If the Dow continue to plunge and break the 16 Aug close, or worse, the 16 Aug low, it may start a long term bear channel making a series of lower lows while bouncing off the lowering 30MA line. The next 2 days will be critical. If the Dow do not rebound immediate to challenge the 30MA resistance line again within the next 2 days, we might really have to prepare ourselves for the worse. The worse do not happen easily neither does it happen frequently, but who says this may not be one of those infrequent times?

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Monday, August 27, 2007

Small Profit Taking On Housing Data...

Inventory of unsold homes rose 2.2%, spurring a small profit taking. It is hardly surprising to see inventory of unsold homes rising as nothing has been done in to encourage people to buy homes yet! Mortgage rates continue to be high, people continue to struggle... how would anyone expect a buying spree in the home market under such conditions? That is why I would see the profit taking today as that... just a small one day profit taking with the major stake on tomorrow's FOMC release. A rate cut tomorrow is what will help home inventories go down and stocks go up! :) Well, nothing much need to be said. Odds that the Fed will keep rates steady this time round remains overwhelmingly high.

The Dow ended sideways today as we have expected. It is also head to head against the strong 30MA resistance level now. Even though bullish momentum continue to be strong on our short term indicators, that is by no means any reassurance especially when a resistance level coincides with the FOMC. On a mid term weekly time frame however, we see that the Dow has rebounded off the weekly 30MA line very nicely and would certainly have more upside. So, I would say that short term has become dangerous but mid term prospects continue to be bright. In fact, it is not strange at all to see the Dow pullback slightly if the Feds hold rates steady before moving on further up as the Dow has moved into the short term overbought territory with a gain of over 1.6% in just one week.

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Sunday, August 26, 2007

The Week Everyone's Waiting For...

This is the week every investor is waiting for... the FOMC WEEK!

This is going to be a dangerous week too... we all know that the best way to solve the current credit crunch is by lowering Fed Fund rate so that less mortgages will go bad and then more mortgage companies can survive. We also know that there are strong indications that the Fed will do that before September. HOWEVER, what we do not know for sure is, is the Fed going to cut rate during this week's meeting? A rate cut this meeting will definite set the bulls rolling. If the Feds should hold rates steady again, it will disappoint A LOT of investors. Seriously, the Feds are still extremely uncertain about cutting rates this time round.

Technically, the Dow has reached the 30MA resistance level I mentioned last week at last and coincidentally, it looks like the FOMC release is going to decide if it will break this level or not.

Monday is expected to be another slow day as investors await the FOMC release on Tuesday. Let's sit tight.

Thursday, August 23, 2007

The Staircase Continues...

The Dow closed down by a thin thin thin 0.25 points yesterday as investors take a short breather after Thursday's gain. On the bright side, Bank of America stepped in and took a huge stake in the ailing mortgage lender, Countrywide Financial. Country Financial is the biggest mortgage lender in the country and has went into a bear trend since Feb 2007, shredding over half of it's share price since! This gave further evidence that the banking system is not about to just let the credit crunch take as many "lives" as we all think it will. There is still a lot that can be done to salvage the housing market and prevent a recession. One such thing is a cut in the Fed Fund rate... we all know it is coming.. but when?

The Dow traded sideways today, beginning another step in the staircase formation. Bullish momentum on our short term indicators continue to build up healthily and I see the staircase formation going up to the 13500 resistance level where we need to reassess if there is enough strength in the market to break the resistance level.

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Wednesday, August 22, 2007

The Staircase Formation Begins...

The Dow gained 145.27 points today amidst more M&A news and completed one step in the Staircase Formation. If you do not know what the Staircase formation is, you should read back on my posts in June where the Dow gained steadily on the staircase formation. Short term momentum indicators continue to show bullish momentum gaining as volume gained slowly and steadily too. I see the staircase formation going much further and it will not be strange to see another couple of days of sideways trading before another big up day. That is the staircase formation. Anyone who went long on the market on my dragon tail formation comment on 16 Aug would have made money by today. :)

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Tuesday, August 21, 2007

The Uncertainty Continues...

What was shaping up to a great day in the markets after an emergency meeting by the Feds and uncle Ben's promise to use all the weapon he has in his arsenal to help the market overcome the credit turmoil, ended up in split fashion after Richmond Fed President Lacker later said that the Fed will not change policies just because the stock market is volatile and that Fed policies should be governed by economics, not the stock market. Well, so much for his understanding of economics. How can anyone look at the stock market as independant from the overall economy??? What's more, cutting Fed Fund rate is NOT aimed at restoring the stock market! It is aimed at easing the mounting credit pressure in the mortgage sector! Well, times like that makes us miss old uncle Greenspan, don't we? Politicians should never be allowed to play with economics.

The Dow traded sideways once again today, closing marginally lower by 30.49 points. Nothing significant should be concluded from the Dow's action today as it has ended in a typical, low volume sideways day, indicating a period of rest where investors preferred to sit on the sidelines. Such a couple of days of sideways trading following a big up day is also a typical behavior for the Dow's staircase like behavior or what I call the StairCase Formation. We should see the Dow forming another big up day within these 2 days as short term bullish momentum continues to build up. The only concern now is whether or not the Dow could break the 13500 resistance level later (which is still hard to tell now).

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Monday, August 20, 2007

Market Opened To A Weak Start...

The Dow ended higher by 42.27 points today. Not bad considering the high level of uncertainty in the market today. On one hand, we have the good news that Dean is not going to hit the oil fields afterall, resulting in a pullback in crude price. On the other hand, we have another hedge fund collaspe due to credit crunch and leading indicators continuing to point towards slow growth (which could be a good thing actually). The Solent Hedge Fund collaspe brought the grim reality of the current credit situation back into focus again as it invested primarily in mortgage backed securities. Let's not forget that there is one sure way to remedy this situation for good and that we are very close to that solution right now... A cut in the Fed Fund Rate! The credit crunch supported by continued signs of a slowing economy are certainly all the reasons the Fed needs to move on to the next step of cutting fed fund rates after last week's fed discount rate cut. I remain optimistic that Uncle Ben will not sit by and do nothing in view of such imminent danger.

A sideways day today in the Dow. Technically, it is not surprising to see a small sideways day following a huge up day. In fact, such a sideways day does pave the way for more upside to come. This is certainly a good followup to the Morning Star signal formed by the Dow last Friday. A Morning Star signal is a technical candlestick formation consisting of 3 candles. 1 down candle, 1 sideways candle and 1 up candle and is particularly strong when occurring at the bottom of a down trend with a dragon tail formation as the sideways candle. Short term indications continue to indicate growing bullish momentum and the total equity put call ratio also leaned towards call options for the first time since the correction started. The Dow looks good to continue upwards until it hits the first resistance level at the 13500 level (or until something changes so dramatically that it negates all our previous signals).

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Sunday, August 19, 2007

A Quiet Week Ahead...

The Dow rebounded indeed last Friday following my analysis of the Dragon Tail Formation on Thursday. In fact, it was a pretty strong rebound on strong volume, one that reflected the optimism of investors and the confidence that the government will not allow the market to turn sour. Both the weekly and daily charts support the continuation of the rally and with a calm and quiet week ahead with no major releases and nothing to rock the boat, this could be the start of a healthy rally. In fact, this is a classical continuation of the primary bull trend from a major correction.

However, I had readers challenging me that no matter how good the technical indications look, the fundamentals will still prove otherwise and totally negate the technical indications. This reader (R**lan) is obviously a total amateur at market analysis. That comment is as good as saying "Even though the burnt smell is obviously in the air, one look into the burning pot will prove that the food is still well". Too many people look at technical analysis as independant from fundamental analysis, that's Sooooooo WRONG! Why do I perform both technical and fundamental analysis back to back daily? That's because both are one and the same! Technical indications are produced from daily price and volume changes and such changes are the RESULT OF FUNDAMENTALS! Because something changed fundamentally, investors' behavior produced the technical indications that we see at the end of the day! That is why when we smell something burning, we immediately head for the fire extinguisher instead of saying that nothing is going on! That indication allows us to take precautions to take advantage of the situation before it becomes obvious. Like fire, it is too late when you see it burning right in front of you, right?

Fundamental analysis and technical analysis is one and the same... 2 ways of looking at the same thing, always remember that!

Thursday, August 16, 2007

The Rebound Begins... FOR REAL!!!

Like I said, I have never seen a real market crash before and this is no exception. The Dow formed an extremely important signal yesterday... a dragon tail formation with SELLING CLIMAX! The problem why the dragon tail formation back on 10 Aug failed to stage a full scale rebound like it did on 14 March was that 14 March was also a SELLING CLIMAX! A Selling Climax is a huge volume surge in a single day at the bottom of a down trend. A selling climax occuring on top of a dragon tail formation makes the rebound even more possible! Want more strong support? This set of signal is occuring right on top of the 200MA, which again is a strong support line. Also, when I introduced the dragon tail formation to the world on 14 March, I mentioned that the signal is stronger as the tail is longer... now, look at the dragon tail formation today... is that a long long long tail or what???!!! :) Ok, there are a lot more technical indications supporting this coming rebound and I am not going to go into them one by one. In short, this is definitely a key reversal day, so, good luck to all of you who still believe the market is going to crash!

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Wednesday, August 15, 2007

The Bear Trend Starts....

I am not a person who easily say "Bear Trend", much less "Crash". The market has proven to be extremely resilient over it's history of more than 90 years. Over the past 90 years, we have only since a couple of real bear trend instances and all of those instances eventually got up and got higher! It is not an easy market to crash at all but from the action today, I see some problems as I mentioned yesterday... if the Dow breaks below the 12800 level tomorrow, we could be in for some trouble. I shall say no further today and I hope I am wrong. The Dow has dropped 3.62% on a weekly basis. The last time it dropped 3.62% on a weekly basis was back at 19 April 2005, which of course ended with the Dow in a rally. Yes, the market usually comes back when hope seems the thinnest.

Tuesday, August 14, 2007

Investors Lose Their Guts At Last...

Investors totally lost their guts today in a coordinated exodus. The Financial sector was again bombarded by a mass panic sell off, resulting in a 2.5% ditch. Fundamentally, I can only say that investors totally lost their guts, compounded by hedge fund drawouts. Decliners led advancers by a huge huge margin, in a market action which can only be described as a "Beating". Technically, the Dow ditched and formed a huge down candle when it should have completed the rebound by closing up today. This action has not only formed a new 4 months low, but has also totally negated the previous rebound signals, including the dragon tail formation. Trend indicators has turned a definite bearish signal and the Weekly 30MA is barely holding its ground. It may indeed be time for a bigger correction than we initially expected. Short term support level is at 12780, breaching which, the Dow would see much more downside to come. Even though the market looks extremely weak now, it is still hard to imagine a direct and committed ditch from this point onwards. Looking back at the recent corrections over the past 4 years, there was never one correction which goes so deeply down and continues down. So is this the start of a bear market or a market crash? I would not think so yet. It is not easy for the market to crash and from the volume today, I would think that point has not been reached yet. It is still an extremely uncertain market, so don't be too quick to make a decision to go short yet.

Monday, August 13, 2007

Another Day Of Struggle...

Well, nobody ever said the stock market is a smooth ride. This is another day of struggle in the stock market as advancers par decliners. What seemed like a promising opening ended with the Dow down marginally by 3.01 points. Stocks opened strongly today as banks all over the world started taking measures to ensure smooth credit operation, soothing fears that the credit crunch might overflow to the overall economy. However, that optimism was steadily digested by profit takers throughout the trading session, ending the day lower. Even though the index did not amazed anyone, many of the individual stocks like HPQ has started to make huge recovery rebounds. Retail sales numbers has also rebounded, giving further evidence to the strengthening economy. With the numbers coming in favorable so far, we can expect the PPI and CPI numbers due this week (please see economic calendar at ) to also be favorable. I remain optimistic with the fundamentals. Yes, there are some problems here and there but these are not problems which cannot be solved.

A sideways day today as the Dow remained uncommitted. Also, nothing has happened to cast doubt on the Dragon Tail Formation of yesterday. For now, let's sit tight and watch. I maintain my view of an imminent rebound.

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Sunday, August 12, 2007

Dragon Tail Formation On The Dow Again!

Well, last week's market action really did scare the wits out of many small time, amatuer investors who flooded major investment forums with questions like "Is this the start of a market crash". First of all, let's put the record straight... the Dow RARELY crashes! In fact, over its history of over 90 years, it has only "crashed" twice! And that 2 crashes ALWAYS rebounds and ends up higher! So, I really cannot understand why every investor is so worried about market crashes. If you are worried about losing and market crashes, then you should think long term investing instead of short term trading.

The Dow was down marginally on a week to week basis and has halted it's decline atop its weekly 30MA line. The Dow also formed a dragon tail formation last Friday on the daily scale and that usually led to a good rebound. The last time a dragon tail formation occurred was back on 14 March 2007, which literally started a 4 months rally. I remain optimistic and I hope all of you will too.

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Thursday, August 09, 2007

Dow Hits Me On The Head...

Days like this always reminds me that the market has a mind of its own, especially with VIX at such high levels, we can expect large up and down swings frequently. The Dow dived 387.18 points in a single day today, with the most influential financial sector taking a serious hit from "renewed credit concern". So what is this "renewed credit concern"... simply a French bank's announcement that it was freezing three funds that invested in U.S. subprime mortgages. Well, that's one investment company's decision on its investment decision and that's only one out of millions of similar companies out there... why should the decision of one investment institute cast so much doubt on facts that was already there and accepted over so long? Only one answer... Panic. Panic is good though... panic is the stock market's way of kicking out those small time investors who cannot afford to lose money who will only cause widespread volatility when they panic like a herd of sheeps. More of such times should keep enough of such sheeps out of the market so that the market can grow under the wise and sensible investment of the professionals and savvy.

Definitely a panic day. The Dow fell on a strong volume today with no doubt that it is a very weak day. All short term indicators shouted to the same red note today, which is also widely expected. Days like this totally nullifies the effectiveness of short term technical analysis and make us look at a longer time frame. The weekly Dow chart is still holding above the weekly 30MA, which is a critical support line. Mid term momentum indications on a weekly frame does suggest that there may be a bit more downside before a rebound right now.

All in all, I can only say that I am disappointed at how easily shaken investors can be today when I have specifically asked everyone not to panic in yesterday's comments. Sometimes, even though people are losing faith in mutual funds and want to take their own money their own hands, I must say, there are just too many out there who just aren't ready and will only cause volatility in a sensitive market... in fact, they will only make the market more sensitive to every little news. If you think you panicked today, then perhaps, or the good of the overall market and to create a more sustainable economy, you should simply buy into a mutual fund.

Wednesday, August 08, 2007

Bulls Way Out Of The Gates!

2 days of drips for my fever has helped me recover enough today to make a post.

Well, the bulls are out of the gates as I have expected 2 days ago and with volume rising steadily, I see the Dow going into new historical highs soon. This is also further encouraged by oil prices retreating from recent highs. Great profits continue to pour in from the bellwether front, forming the solid fundamental needed for market growth. Technically, the Dow has started a new leg off the weekly 30MA and looks healthy to move on further until a significant gap occurs between the Dow and the weekly 30MA again. The fundamentals and technicals has rarely lined up so perfectly! For now, let no skeptics shake your faith and let the bulls roll!

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Tuesday, August 07, 2007

Beginning of a Re-Re-Rebound?

I am down with high fever today, so I will try to make this short and sharp.

The fundamentals in the market continue to look great with great earnings and a ton of great mergers. Investors would love to see more signs that inflation is truly under control from today's FOMC release. The technicals continue to prove that the 13250 support level is a strong one with yesterday's strong rebound. I would say, the fundamentals are ready and the technicals are ready... Let The Bulls ROLL!

Sunday, August 05, 2007

The Beginning Of The End?

The Dow stumbled another 83.56 points the whole of last week when the majority of us think that a rebound should have occurred. Such is the nature of the market. Looking at the weekly chart, we see that the Dow is now extremely close to the weekly 30MA line and also at the edge of a short term support level. This week will be critical... if the Dow breaks down decisively on strong volume this week, it could be the beginning of the end... be cautious.

Wednesday, August 01, 2007

The Beginning Of The Re-Rebound?

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There are little or no fundamental to talk about that contributed directly to the market action today. In my opinion, market movement these few days are purely technical. Remember I speculated that the Dow would retreat back down to the weekly 30MA line before staging a real rebound? The Dow went to a low of 13132.65 today, 132.65 points to the weekly 30MA line and then rebounded to end the day higher. Our momentum indicators revealed a definite reversal of bearish momentum to bullish momentum today, again, strongly suggesting that a rebound is imminent. Even though it is hard to pin point the exact day, I would say within these couple of days. So, some of you are asking me, hey, what happens if the Dow breaks below the weekly 30MA line? Well, such a break may not also indicate a full scale bear trend as we saw happened back in 13 June 06 and 19 April 05. When it happens, we need to take into consideration a lot of other fundamental and technical factors surrounding it in order to arrive at a conclusion as to what is going on, therefore, there is no way to answer that question intelligently. Anyone who tells you what will happen if such a break happens are merely speculating.

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