Another Healthy Retreat...

FUNDAMENTAL ANALYSIS
The Dow retreated yet another 79.25 points today as the ISM services index turned in the lowest level since March. The ISM services index is the second monthly index released by the Institute for Supply Management and is the cousin of the more influential ISM manufacturing index. ISM services is released on the 3rd business day of every month and measures the health of the service sector. Similar to the ISM manufacturing index, a reading above 50 suggests a growing service industry and a reading below 50 suggests a contracting service industry. The ISM service index is not a very influential economic indicator due to its relatively short history. There is simply too little data to arrive at a significant emphirical correlation between the index and prevailing GDP performance. That is why I would attribute today's market action more to profit taking than on the ISM services performance as a declining ISM services index should enforce the probability of another rate cut this month, thereby spurring some optimism instead. In fact, contrary to many of the news wires out there saying that today's pullback is due to poor economic data, the market ditched before the ISM services was released and then actually ROSE after the ISM services index was released! This suggests that there was already heavy profit taking prevalent in the market today and the ISM services index actually ENCOURAGED some buying (due to the higher possbility of a rate cut)! (so much for new wires)

TECHNICAL ANALYSIS
The Dow continues a healthy retreat today even though it dipped below the 14000 level once again. The Dow needs to get out of its short term overbought position for a sustainable bull trend to develop. In this sense, 2 days of pullback still didn't do the job. The Dow continues to be short term overbought and more sideways action should digest more of it. I would, however, be placing emphasis on the 1 Oct low. The Dow should not dip below the 1 Oct low in its efforts to digest the current short term overbought sentiment, otherwise, the short term bull pattern will be broken and the 14000 level would once again become a resistance level. Strangely, the markets has been more cautious and wary more than bullish since the fed rate cut. So far, only investors who took a risky speculative position before the rate cut would have benefitted significantly. Even on the weekly charts, it does seem like the Dow is almost due for a pullback to the weekly 30MA before it could muster enough energy to go further.


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