Stock Market Analysis

Sunday, September 30, 2007

Still Knocking On Heaven's Door...

The road to Heaven is usually the easy part... it's always the doorway that's daunting. Here we have the Dow still at the doorway this week and displaying no signs of the explosive energy needed to get beyond the 14000 point. In fact, the Dow continues to be short term overbought by the end of last week, further reducing the possibilities of any explosive breakouts. Many analysts are now speculating for another rate cut this month before the Dow could make a new high. Well, I would say that with the rash of economic data pointing more towards a recession rather than inflation, another quarter point cut may indeed be on our way. In fact, the Fed Fund Index has already priced in an 80% possibility of a quarter point cut at this point of time. The week ahead continues to be daunting and a slight pullback should not be surprising.

Thursday, September 27, 2007

Knocking At The All Time High Door...

Despite all kinds of mixed economic data, the Dow continued to inch towards the all time high resistance level of 14000 points today, ending up 34.79 points to close at 13912.94 points. Again, this was done on ever decreasing volume and still in a grossly short term overbought region. All indications suggests that the Dow is not going to be able to break the 14000 level anytime soon and may make a significant pullback upon reaching that level. Even though a pullback is to be expected, the overall trend should remain bullish as investors look forward to more rate cuts amidst the torrents of lousy economic data.

Wednesday, September 26, 2007

Dow Breaks From Sideways Trading...

The Dow gained 99.50 points today in a nice attempt to break out of 5 days of sideways trading. Many analysts attributed today's small rally to the GM and Bear Stearns news. However, if the good news is this localised to just 2 companies, why did the market stage a broad based gain instead of just a small gain based on the mega gains of just 2 companies (and their associates)? From what I noticed, the market continued to be bullish due to more and more reasons assuring investors that more rate cuts are coming our way. The recent bout of bad economic data not only failed to bring the Dow down, but eventually resulted in a small rally today! This shows that investors are optimistic and expecting something... another rate cut next month?

The Dow broke out of sideways trading today and good thing it is to upside. However, the bad news is, this move is made on declining volume, didn't manage to reach a significant height, and prevented the Dow from digesting more of the short term overbought sentiment prior to challenging the all time high level. This is going to make it EXTREME difficult for the Dow to make a break. This is time again to be extremely cautious.

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Tuesday, September 25, 2007

The Dow Continues To Crawl...

The Dow continued to trade sideways for a fifth straight day after the Fed release day. In fact, the Dow seemed to be inclined to downside today as it made a new 5 days low. This action is hardly surprising as the Dow faces the daunting all new high resistance level at 14000 right when it is in short term overbought position. Even after today's action, the Dow remains short term overbought. It seems like the only way to digest that overbought sentiment is for the Dow to pullback a little in order to attract investors who missed entered before the Fed release day (which was a dangerous move by the way).

Sunday, September 23, 2007

Still A Healthy Young Bull...

The Dow made a fantastic 377.67 points rally last week on uncle Ben's fantastic rate cut package. In fact, the Dow has made a 706.81 points over the last 2 weeks! That certainly makes one wonder... is it now overbought? is it time for a little pullback? Well, technically, YES. Especially with the all time high resistance level of 14000 points looming in the horizon. That is also why the Dow has been trading sideways over the past 3 trading days in an attempt to digest some of these short term overbought sentiments. However, that 3 days has not done anything significant to bring the Dow out of being short term overbought on our indicators. 2 things might happen from this point onwards. 1, The Dow continues sideways for a few days more or pullback for a couple of days and then make a grand break to new highs. 2, The Dow go straight for the 14000 points and then fail to make a break, correcting back down signigicantly (probably to the 13500 level). Whatever it might be, it is certainly not the job of traders like us to predict what will happen. Our job is to make sure we know what to do in order to profit should any of the 2 scenarios happen.

Dow Technical Chart By Best Charting Software TC2007!

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Thursday, September 20, 2007

The End Of A Great Week...

As expected, the Dow pulled back slightly today as the 14000 resistance level looms. In fact, it is not unusual to see some more pull back next week in order to bring the Dow out of its short term overbought status. That way, it might be able to muster enough energy to challenge the 14000 level late next week. Oil prices are also soaring through the sky and into space faster than a rocket ship. So far, its effects are not felt in the stock market yet but if it should continue this way, investors will soon take notice as it adds to inflation pressure. We all know that inflation = rate hikes and we all hate that, don't we?

Wednesday, September 19, 2007

The Bulls Rages On...

Nothing much to be said about fundamentals today as the bulls party on in the aftermath of the Fed release. The Dow gained a smaller 76.17 points today as is expected after such a strong single day gain. Such a slow down is to be expected due to 2 reasons; 1, Every strong one day gains always lead to a few slow or pullback days. 2, The 14000 all time high resistance level is nigh. With the Dow at short term overbought region again, it may be difficult to muster enough energy to make a clean and healthy break above 14000 without first pulling slightly back or going sideways for a few days.

Tuesday, September 18, 2007

Ben The Market Savior!

Even though Uncle Ben's in the habit of disappointing the market, when he really act to save, he do it beyond everyone's expectations. The Feds not only cut 50 basis points off the Fed Fund Rate but upped the poker by further cutting another 50 basis point off the discount fund rate! This way, the economy will get an instant dose of steriods through the immediate help rendered to banks and financial institutes through the discount rate cut and be ensured of recession curbing through the Fed fund rate cut. These cuts will definitely help alleviate the current credit situation, keep more people in their homes, save more mortgage lenders from bankruptcy and eventually, improve spending and consumer confidence. The Dow was trading with a 70 points gain just minutes before the release and quickly scaled to a stunning 20 points gain within just 20mins of the release and then end the day with a huge 335.97 points gain. We have not seen such a strong single day gain since 2002!!! Well, enjoy the bull for now and do not be surprised to see a couple of profit taking days... it is time speculators enjoy the wins of their high risk bets.

Well, definitely a fundamental ruled day. The Dow's gain has enabled it to make a strong break above the 50MA resistance line at last! The Dow has been struggling at this critical level for a couple of weeks and if it failed to make a break, it might correct back down and laspe into a full bear trend. I see the next short term resistance level at 14000... the new high. In the meantime, we might see some profit taking but the staircase formation should resume. Enjoy the bull.

Dow Technical Chart By Best Charting Software TC2007!

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Monday, September 17, 2007

The Most Dangerous Day Arrives....

The day of reckoning is upon us. It is already speculation to expect a rate cut at all and the market seemed to have upped that expectation to a 50 basis point cut! Talk about insensible expectations! Just imagine the disappointment if uncle ben cut just 25 basis points (which is already a bonus) or that he decides to hold ratess steady AGAIN!

Ok, enough said, get some rest and be up to watch the release...

Sunday, September 16, 2007

The Most Dangerous Week....

Yes, you read it right... this is the most dangerous week that we have seen in a long long time. Few times in the history of the Dow has the Fed's decision on Fed Fund Rate ever been so important. Too many eyes and ears are on the FOMC meeting this Tuesday. Investors (such as you and me) are expecting a cut in the Fed Fund Rate this time round, resulting in the Dow rallying 329.14 points in a single week last week! In fact, the pricing in of this possibility has started since the end of August, resulting in a total gain of over 600 points since 17 August.

Now, imagine the disappointment if Uncle Ben decides to hold the Fed Fund Rate steady again.... Imagine what comes with such disappointment and imagine how much of the already priced in gains the Dow is going to give back...

Uncle Ben made no mention nor hint of a rate cut during all of his public speeches since the last meeting. The US economy has not come this close to a recession in about a century (strangely, Uncle Ben doesn't seem to think so)! If the Feds does not help citizens by reducing interest rates and making mortgage installments affordable, not only will many more mortgage lenders go broke, many many more citizens will lose their homes and their spending power, resulting in a contracting economy and the dreaded "R"!

So, how wise is the US leadership now? We will know in 2 days time but I will definitely not stake all my bucks on the optimistic side.

Option Traders should definitely go delta neutral on Monday.

Thursday, September 13, 2007

Dow Challenges 50MA Resistance...

The Dow RALLIED 133.23 points today as credit fears relaxes. This is the second time the Dow has gained over 100 points this week, making this the most delightful week in a long time... so far. Investors are greeted by a lower annual average mortgage rate and CountryWide, US's largest mortgage lender, securing 12 billion in credit. These news assured investors that the credit crunch may not be as bad as the media has made it to sound so far. These series of large gains this week could also be the pricing in of a possible rate cut next Wednesday... which of course could lead to a huge disappointment and a correction should the rate cut not come... all in all, all eyes are still on the rate cut and new money should still sit on the sidelines.

The Dow made it to the daily 50MA resistance level at last on rising bullish momentum. Tomorrow will be the day of reckoning... failing at this level tomorrow could put the Dow back down into a bear channel. So far, the Dow looks good to make a break as it displays healthy bullish momentum on the short and mid term charts.

DOW Technical Chart By Best Charting Software TC2007!

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Tuesday, September 11, 2007

Rate Cut Price In Begins...

The DOW gained 180.54 points today in a nice get back rally even though Uncle Ben stubbornly made no reference to a rate cut in his speech in Berlin this morning. Speculative institutional players are beginning to enter the market systematically, thus slowly pricing in the rate cut. Such pricing in ahead of major, high confidence events are very common, usually leading to a weak rally when the event really occurs. The Fed has a very very hard decision to make here... cut rates and sacrifice the dollar, hold rates and sacrifice the market and the economy... both are very bad scenarios. Let's see what these highly paid geniuses can cook up to save the economy this time round. For us traders, new money should really stay on the side.

A very weak rally today as the Dow gained on declining volume ( read about the relationship between volume and price movement in my article here ). Again, such significant gains on weak volume are always the work of institutional players trying to get ahead of the crowd... but will the crowd come? The daily 50MA line has proven to be an extremely tough resistance level lately... how dangerous is that? Beating that line leads to a rally, failing at that line leads to a bear trend... that's how dangerous that is. Right now, with the Dow retreating back down to the short term oversold region, it might muster some strength in an attempt to break the 50MA line. In fact, I see that coming this week... make or break.... this week.

Dow Technical Chart By Best Charting Software, TC2007!

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Monday, September 10, 2007

Volatility Continues Ahead Of Fed Decision...

Volatility describes how suddenly and without warning, changes can happen. A volatile mrket is one which can change its direction or nature suddenly and without warning. This is the market condition that we are all in right now.

The Fed meeting is next week (18 Sep), where the Fed is expected to cut rates, but as the Fed meeting draws near, more and more horrifying news suggesting that the economy is going into a recession hit the wire; Payroll dropped for the first time in years, Fed official comments that the credit crunch is going to hurt the economy and consumer spending, employment is down, employment rate dropped, percentage of industries adding jobs dropped, and most scary of all, Bernanke's recent talks doesn't give a hint he is about to cut rates!

Uncle Ben's stand on this matter is clear... a rate cut is a monetary policy which is aimed at solving economic problems, not a move to salvage the stock market. But imagine this... you are now paying through your nose for your monthly mortgage installment, with little to spare for food, let alone luxury... how is that helping the economy? A rate cut will alleviate the monthly installment pressure through a reduction in the installment amount, allowing you to buy more food and probably some luxury. That way, more money returns to the economy, consumer spending goes up, consumer confidence goes up. How is that not helping the economy... and the stock market of course.

So far, we are not seeing a definite pricing in of a possible rate cut in the stock market yet. The Dow continue to fiddle on top of its weekly 30MA, which is a good thing. However, if the Dow should drop today significantly, it will breach the weekly 30MA and form a clear bearish channel on the daily charts... that could mean a lot more downside to come. For now, I remain optimistic as the Dow is still closely replicating its behavior back at 29 March where a small 2 to 3 days ditch occurred before a full scale rally. Tomorrow, the market shall tell us its decision... up or down.

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Sunday, September 09, 2007

Still Fiddling On The 30MA Line...

The Dow corrected back down by 125.35 points last week, back on top of the weekly 30MA line. The Dow has been fiddling right on top of this critical support line for the last 3 weeks, is this normal? Well, I must say it is normal. Looking back at 5 March 2007, the Dow demonstrated almost the exact same behavior of correcting down to the 30MA line and then fiddling right on top of it for 4 weeks before the rally actually begins. Will we get a rebound on Monday like we saw back on 29 August when the market ditched on 28 August.... just like it did last Friday?

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Thursday, September 06, 2007

A sideways day...

The Dow closed up by 57.88 points today on a series of mixed economic data. Of significance, jobless claim ditched to multi years low along with the Feds comment suggesting that inflation is somewhat under control, gave investors a small spur of optimism. On the technical side, the Dow's behavior today is only good enough as a sideways day, making neither a higher high nor a lower low. With the Dow now in short term overbought region, it is not strange at all to see a few flat days like this or even a small pullback. All in all, not an exciting day nor is it a defining day. I will be watching the 13250 support level very closely. If the Dow break below this level strongly, we might see much much more downside to come as the Dow go into a bearish channel.

Dow Technical Chart By Best Charting Software TC2007

Wednesday, September 05, 2007

Home Sales Tank & No Hint Of Rate Cut

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Is it even surprising to see pending home sales hitting multi-years low when so many has been hurt in the last home rush? Is it even surprising to not get a hint of a rate cut out of the Fed beige book when I have explained the way Bernanke works yesterday? Is it even surprising to get a 143.39 points retreat in the Dow when it has moved more than 600 points since the rally begun back at 17 Aug? Enough said. Nothing has actually changed in the economy and nothing new has happened. The only thing that actually happened is that no miracles happened in yesterday's releases. All the numbers and news merely confirmed what we already know about the current situation. So what's the fuss? I don't really know. I guess some people just need to take some profit at this point.

About time someone take some profit off the table as the Dow enters short term overbought. The Dow's small retreat of 143.39 points is marked by a retreating volume, suggesting that the move is not a trend changing one. Today's retreat put the Dow back on top of it's daily 30MA line again. That line was a resistance level just a few days ago and now, it needs to prove that it has become a support level by having the Dow bounce off and up tomorrow. If the Dow fall back down and close below the 30MA line, then we might see more sideways actions before a real rally begins.

Dow Technical Chart By Best Charting Software TC2007!

Tuesday, September 04, 2007

Up Up and Away!

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No surprise today as the Dow continued its rally as I have expected.

The ISM Manufacturing numbers came in much lower than the July reading but still comfortably above the 50 mark at 54.9. This suggests a slow down in the EXPANSION in the manufacturing sector. The keyword here is "slow down", fuelling investor confidence that the Fed is indeed going to cut rates in 2 weeks time. Seriously, understanding the way Bernanke works, I personally do not think the rate cut is going to happen this time round either. Bernanke is waiting for a much more serious scenario to happen in the economic numbers before taking that step. That scenario is just not happening yet.

Technically, the Dow is rising with rising short term bullish momentum and still a short leap from being seriously short term overbought, so I would expect this rally to go on for a few days more. Seriously, I would not expect the Dow to go straight up like that. Sometime along the road, it will certain laspe into the familar staircase formation again. For now, let's enjoy the flowers while they bloom. I see mid term resistance at about 13900 where we should see another significant correction.

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Monday, September 03, 2007

New Week, New Hope...

Welcome back from the long weekends!

Well, a new week and a new hope as I see the volatility coming to an end soon in favor of the bulls.

Looking at the weekly Dow chart, we see that despite the volatility over the last 2 weeks, the Dow has faithfully bounced off the weekly 30MA support line and has begun a nice followup to upside. Mid term momentum indicators also suggests a build up in mid term bullishness. On a daily time frame, the Dow has also closed above the important 30MA resistance line on growing volume. That has totally alleviated the fear that I mentioned last Thursday.

Sometimes, I cannot help but agree with the day Uncle Bernanke work. Uncle Ben totally understands the concept that the stock market is completely based on sentiments and not exact economic numbers. That's probably why he refused to cut rates despite pressure from every angle. Simply by throwing false promises and insignificant actions into the air, he has created a growing sense of optimism that has obviously helped the market so far. That is in fact good enough. Cutting rates is a last resort that he will use against real economic problems, not stock market problems, and that is in my humble opinion, extreme wise.

I look forward to an exciting and rewarding week ahead.

Dow Technical Chart By TC2007!

Sunday, September 02, 2007