More Sell Offs...

FUNDAMENTAL ANALYSIS
We witnessed more profit taking today as profiteers bailed out heavily when the Dow reached new historical highs intraday. The profit taking action left the Dow to close down by 62.57 points or 0.45%. The day actually started out extremely well when Jobless claims fell more than expected, allowing the Dow to open up strongly. Well, not strange to see profit taking at this height as the marginal utility of profit pleasure gives way to the fear of loss. (see my article on how the Law of Diminishing Marginal Utility affects markets ) Afterall, the stock market is not totally based on market fundamentals, right? (George Soros calls the over reliance on market fundamentals the "Market Fundamentalism")

TECHNICAL ANALYSIS
The Dow certainly played according to expectations by trading along the 14000 line as I mentioned yesterday. However, today's action is slightly different from yesterday's. Today, the Dow sold off on heavy volume and spurred a ton of bearish reversal signals in the individual stocks. This could mean trouble and a test of the 14000's holding power. Obviously a sell off has started, which is nothing to be surprised about as the Dow is already very over extended in comparison with the 30WMA. (for a detailed discussion on the 30WMA and its significance, please read the comments on my post on 9 Oct.)In fact, for the rally to continue on healthily, I would expect the Dow to trade sideways for many more days to come, or simply make a significant ditch before rebounding back up. However, the danger remains at the 14000 border. If the Dow should ditch below the 14000 line, it might find it a challenge to get back above it again later on. So, I would certainly prefer that the Dow simply trade sideways above the 14000 level and wait for the 30WMA to catch up a bit... However, I won't bet on it as the internals does look awfully dangerous right now.


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