Stock Market Analysis

Tuesday, October 09, 2007

YES!!! Dow Makes It To The Top!


FUNDAMENTAL ANALYSIS
The Dow makes historical high at last closing at 14164.53 points!!! *~Pops Firecrackers~* In fact, the Dow did not just make one historical moment today but 2! The other historical performance is that the Dow made a month to date gain of over 7% since 10 Sep, the strongest single month move since 2003's great rebound! Too much optimism in the market over too little real data? I think so too. The market started out mixed and uncertain this morning but optimism soon flooded the floor and pushed the market straight for new highs after the Fed Minutes was released. The Fed Minutes "seemed" to support yet another rate cut at the end of the month. It is indeed hard to see where the Fed is going with this expansionary monetary policy but as long as it is an expansionary monetary policy, the economy can be deemed to do better in the months to come, starting a huge pricing in of that possibility in the stock markets. An Expansionary Monetary Policy is a policy taken to expand the economy by increasing the monetary base with actions such as lowering of Fed Fund targets. Even though the minutes looks good, Fed Fund Futures are still pointing to a less than 50% chance of a rate cut at the end of the month... are investors heading for a huge disappointment? Whatever the outcome, I would not be surprised.

TECHNICAL ANALYSIS
The Dow is once again in lala land... the land of the unknown where dragons lurk in the dark beyond. The Dow has done well rebounding off the 14000 point, creating a short term support level from which it can pursue higher gains, and it did. A strong bullish momentum is now underway, pushing the Dow at the doorway of being over-extended. In fact, from the Dow's retracement pattern so far, I would not be surprised for the Dow to continue to move further up but retrace back down to around today's level when the inevitable pullback comes. As an trend follower, I never make a judgement before things really happen and I will be peeled at the first indications.


Dow Technical Chart By Best Charting Software TC2007!

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2 Comments:

Anonymous Rav said...

Hi Jason,

Thanks for your analysis. I have noticed on your chart that INDU is able to move above (without touching) 30 WMA over prolonged period as it did from MAr to Jul. What makes you think that it should pullback to that line anytime soon?

Cheers, Rav

5:41 AM  
Blogger Founder, Master 'O' Equity said...

Hi Rav,

Thank you for your comment. :)

The mean / variance theory and the mean reversal theory mandated that every time stocks or market becomes over extended, it will reverse back to the mean. I think the entire finance community will agree with that.

Now, the question really is, how is it over extended and where is the mean? I have realised over long periods of backtesting that this mean for the Dow is roughly the 30 WMA and over extended is when the Dow trades a significant height above the 30 WMA. When that happens, a pullback occurs. We witnessed 2 such instances this year on the 28 Feb week and 30 July week. Only when the Dow pulls away strongly, resulting in a significant distance from the 30WMA does a pullback occur. If the Dow moves up steadily with the 30WMA, it is to be regarded as a healthy, sustainable rally.

I wrote an article too explaining why the mean reversal happens at http://www.mastersoequity.com/articles12.htm and you may find it useful. :)

Cheers, J

5:55 AM  

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