Oil Rises As Stocks Sinks...

FUNDAMENTAL ANALYSIS
The Dow sheds 108.28 points today to close 15.2 points shy of the 14000 mark. This is also the hardest single day drop since 7 Sep 2007 when the rally just begun. Oil prices has reached high points which nobody has expected, especially with the summer months just behind us. Higher energy always mean higher production prices (which showed up in the PPI index last week) and increases the possibility of inflation. Early optimism in the market futures just before market opens due to a better than expected Empire State Index reading was immediately erased. Well, the Empire State Index has never been a major market moving index. The Empire State Index tracks manufacturing activities in New York on a monthly basis through a survey of a goup of 175 manufacturing CEOs. Well, you guessed it, when did New York's small community of manufacturers become a major or significant determinant of overall economic health? That is why the Empire State Index continues to be one of those index which fails to move markets significantly. Again, no prime market movers tomorrow as we look forward to Wednesday's CPI numbers. More and more analysts are now gloomy about the possibility of another rate cut at the end of the month. However, our dear Uncle Ben continues to be careful and wary about economic outlook in his speech today in Washington. Obviously things are not as rosy as we thought... yet...

TECHNICAL ANALYSIS
Well, can't say I wasn't surprised with the magnitude and eagerness of the pullback today. The only consolation is that the Dow continues to close near the 14000 line, in line with my expectation of trading along the 14000 line until the 30MA catches up with it. Yesterday's action took the Dow off the short term overbought region in one fell sweep but has also started a bearish momentum as our trend indicator turns for the first time since the rally begun. Well, regression to the mean is not just a mean old theory, but a fact in all areas of life, including the stock markets. What has baffled scientists and mathematicians (and to some extend, economists like us) is what constitutes the "mean" under each circumstances. I have my own research and empirical data which are not yet conclusive, however, it seems to have been pretty consistent so far for the Dow. Yes, you guessed it, the 30 days/weeks/month Moving Average. So, what is my take for the next couple of days? No guarantees but I would not be surprised if the Dow decides to visit the "mean".

What is your view? Do you think we will get another rate cut at the end of the month? Please comment to this post with your thoughts! :)


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