14000 BEATEN!!!!!!

FUNDAMENTAL ANALYSIS
The market is always full of surprises and just when I thought the 14000 points resistance level is going to pose a bit of a problem, the Dow beat it in one swift stroke today, closing 191.92 points high at 14087.55! Obviously, the pricing in of another quarter point or half point rate cut has begun right now with the ISM index reporting in the lowest since March, marking a 3rd consecutive decline. The weak ISM data increases the possibility of another rate cut this month, encouraging the pricing in that we saw today.

The ISM index or the Institute for Supply Management manufacturing index is the first economic data to be releases on the first business day every month. It is an economic indicator of great significance not only for its timeliness but also for its close correlation to the GDP performance, which is why it maintained its high level of importance since its first inception at 1931. In an over simplistic explanation, a reading above 50 suggests an expanding economy and a reading below 50 suggests a contracting economy. The ISM index hit 52 in today's release, down from 52.9 in the last release. A reading of 52 from 53.9 suggests that the US economy is expanding at a declining rate. If the situation deteriorates further, the economy could fall into a recession. AS point of the index above 50 roughly approximates a 0.3% in GDP growth, as the ISM index falls, the US GDP is also being eroded away. Such a reading definitely increases the possibility of another rate cut and thus the action we saw today.

Today's action is also a reminder of the classical Efficient Market Hypothesis in action. The Efficient Market Hypothesis has been around for decades and has recieved bombardment from all fronts, especially from the real world trading floors of its inaccurate assumptions of a rational market full of rational well informed investors such that stock prices at anytime reflects all known information about that stock. This didn't used to be true during the time Eugene Fama suggested it in 1965 when information exchange was difficult and information is the privilege of the minority. Today, with the information and internet revolution, more and more the Efficient Market Hypothesis is coming to being (although at this point in time, the market remains highly inefficient in many ways). As more and more investors are well versed with the effects of a rate cut right now and have up to the minute information on all economic data, any future gains are quickly priced in way before that future event happens, such that, there are actually little or no gains left when that future event happens. This results in the scenario suggested by the Efficient Market Hypothesis. Certainly, the EMH is alive and well and currently being groomed into being by the world today despite its many short comings.

TECHNICAL ANALYSIS
The Dow made a huge break above the 14000 points level today on a discomforting mediocre volume. In fact, volume was somewhat on the same level as it was yesterday. This makes me wonder if this breakout is the work of a few institutional buyings. The Dow continues to be short term over bought at this time and needs to quickly find a foothold, making 14000 a support level before it can move comfortably further. That being said, looking at a longer time frame, we can see that the bullish channel established since the dragon tail formation I suggested back on 16 August is pretty much intact and goign strong. I would like to see the Dow digest some of the overbought sentiment by going sideways a bit along the 14000 level before moving upwards more as anymore upwards movement will increase the probability of a significant pullback and makes it ever harder for anyone to put on new positions.


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