Welcome Back From ThanksGiving!

A Big Welcome back to all of you!

I am also sad to add, Welcome back to the first negative November in 7 years (the last time we had a negative November was back in 2000... yeah, before the big bear market... scary?). Yes, it does seem like the Dow is not going to miraculously reverse its losses this final week of November. In fact, this is not only the first negative November in 7 years but also the WORST November since the great 1987 crash! I am sorry to be scaring the wits out of all of you especially during this holiday season. Are we going to get a Santa Claus rally this time round? If history is anything to go by, chances are it is going to happen. In fact, institutions are becoming increasingly optimistic about the market right now as indicated by my proprietary Institution Sentiment Index.

It is going to be a pretty heavy weight week ahead with the GDP numbers, the Core PCE and the weekly retail sales index being in focus. Yes, investors are dying to see early indications of how retailers did during Black Friday (black friday does not mean a bad friday. It is the day where retailers go into the black). Black Friday accounts for nearly 10% of the year's sale for most retailers and a healthy performance would not only benefit the retail sector but indicative of consumer sentiments too! From the crowd at the malls on Black Friday, I would expect to see a healthy number. The final GDP number for the year will also be released this week on Thursday (see Economic Calendar) and investors will be peeled to see if the fabulous growth we have seen so far would continue into this quarter. Analysts are expecting a slight pullback from the 3.9% we saw the last time as such growth rate casts a lot of doubt. I will not be surprised to see continue growth in the export sector in the numbers with the continued weakening in the dollar. Yes, a strong dollar is great at least for now, as it does seem to do more good than bad... right until the rest of the nations decide to dump the dollar... the Treasury better have some contingencies in their drawer right now.

On the technical front, number crunching analysts freshly graduated from school have announced that the Dow is in a "bear market" simply because the "Lowest CLOSE" of August has been breached on 21 Nov. If you are one of those Dow theory junkies fresh from school thinking that market analysis is a precise mathematical formula, here's my take:

1. The founders of the Dow theory has clearly stated that one should not take those levels as a precise science but a guide from which to look at price actions closely over the next few periods!

2. Analysis is a study of signficance, not a study of precision! Even if the lowest close of August is anything to go by, it has to be breached by a significant margin. Clearly, the "breach" on 21 Nov is hardly significant and was never followed up significantly last Friday.

3. The lowest "CLOSE", or what many analysts have wrongly referred to as the "August Low" is NOTHING TO GO BY! Of significance, the lowest LOW of August should be a much better guide and that stands at 12517.94, adhering to the principle of prudence. We are still a big distance from that!

4. The Dow theory purported that a bear market is one with a gradual decline intercepted with short periods of sharp reaction rallies but is that what is happening? No! What the Dow is showing now is a period of SHARP decline which makes up a secondary movement in view of the primary bull trend in accordance with the Dow theory! In fact, in adherence to the Dow theory, a retracement of up to 50% of the original advance is still to be classified as nothing more than a secondary movement, not a switch to another primary trend! Again, we are far from that.

So, am I saying that the market is going to rally from here? NO! What I am saying is that there is still no significant evidence on the technical front that the market is going into a primary bear trend. This is where I would be watching the market closely for any indication of strength or weakness. My take? I would expect to see a reaction rally as soon as next week and perhaps even carry through the December holiday period but whether or not it will lead to a bottom and a rally, we will have to take the new informations that will be released along the way into consideration. So far, the inclined bond yield curve continue to witness a flight to quality along with a hint of optimism in future growth. The dollar is going to weaken further as the Fed is expected to cut another 25 basis points in December and oil will be expected to break the $100 per barrel level soon as the dollar continues to decline.... AND, I believe all these have already been priced into the market... so, what's next?


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