More Warning Signs...

FUNDAMENTAL ANALYSIS
Yes, more contrarian views from me today as investors enjoy all the hoaxing from the Fed so far. I picked up a few more warning signs today suggesting that all is not that rosy:

1. Fed fund futures are starting to price in a possibility of a 50 basis point cut. Unless the Fed cut by 75 basis points or more, it is likely to disappoint the market.

2. Jobless claim numbers increased this time round by 32,000, bring the 4 weeks moving average up by 5,500. In fact, jobless claim has been rising throughout the year due to structural unemployment as more and more manufacturers move operations overseas. Jobs is what is going to move the market most and contracting employment number is the first signs of a recession. Next week's Job Report (see economic calendar here)is going to be critical. With the jobless claims number on the rise, the Job report has become somewhat uncertain. What is certain is that if the job reports turned out lousy, all the optimism in the market will be wiped out instantly. In fact, much of these optimism this week are due to nothing but a lot of hoaxing by the Feds!

Yes, GDP continues to be extremely strong and grew at the fastest pace in Q3 due to a contracting dollar with exports rising 1% against the Q2 report. However, the dollar is now at a level so low that the Europeans cannot sit by and do nothing anymore. Europeans are rushing to the States for shopping throughout the holiday season, returning with huge duffle bags of cheap goodies! In fact, most of the luxury brands only cost half the price in the States versus in England! Well, free market capitalism solves a lot of problems by itself. With such imbalance, a tilt by the Euro back down to more acceptable and less harmful levels seems imperative. In fact, analysts are expecting a rate cut from the BOE soon. So, what happens when the dollar returns to equilibrium? Exports contract, taking the only strong component in the GDP numbers down with it and erases the only bit of optimism left in the report. This is going to be a prolonged period of uncertainty.

TECHNICAL ANALYSIS
The Dow's reaction rally seemed to have begun and ended all in one week and sadly, it ended where I hate most. The Dow closed right on top of its 30days moving average yesterday with a huge hangman signal in the DIA, suggesting a lot of weakness and a strong resistance level.


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This tilts the probability of the Dow's movement next week in favor of the bears. On the other hand, it is definitely not wrong for the Dow to pullback slightly from here in accordance to the Dow Theory. What is important is what level the pullback goes down to. If the pullback ended higher than the 26 Nov low, a return to a primary bull trend may be suggested. However, if the pullback goes under that low, it will be the start of the "Big Move" phase of a primary bear trend, which means much more downside to come for a significantly long time. Looking at the weekly charts, the uptrend seems intact with the 50WMA providing a strong support. The 30WMA at about 13500 will be critical. If the 30WMA turns into a resistance level which does not get broken next week significantly, it could spell the level where the Dow might just move downwards from. All in all, more reasons to be bearish than bullish... beware.


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