Not Too Surprising Day...

FUNDAMENTAL ANALYSIS
Market fundamentals are once again strengthened today with Q1 GDP continuing to be positive and the Fed cutting a "probably-final" 25 basis point cut... all within our expectations. Why then did the market sell off right after Bernanke's speech, you may ask? Simply because this is a volatile market on a rocky path to recovery! The Dow have been staging a very rocky recovery since March 08, marked by strong sell offs on seemingly good news by the last of the skeptical bears still believing in the "buy into weakness and selling into strength" method, which is useful only in a totally sideways, volatile market. Those are the last of the bears who still does not believe in a recovery despite my 15 signs of the bottom and the fact that the Dow has gained an annualized 53.64% over the past month! Well, I must say those bears who sold into the strength today would have nothing more to buy when the market continues its recovery and then more and more bears would have to turn themselves into bulls in order to continue participation in the stock market.

Tomorrow's ISM index is going to be critical as well (see economic calendar). To play into my 15 signs of the bottom, the ISM index need to show continued signs of recovery. The ISM index has already begun recovering last month and a follow up this month, no matter how small, would confirm the recovery and set the stage for more upside in the stock market. ADP payroll today also pointing upwards, shedding some light of optimism on this Friday's Job Report as well. All in all, we could be in line for a pretty good month if all the numbers line up properly and a final word of caution... never take single day moves at face value.

Adding support to the growing optimism in the market is the 2 days correction in oil price. Even though it is not yet a significant pullback that might suggest leading into a full scale correction, it is still great to see the great crude oil halting its advance at least for now.

Let's recap and update our signs of the bottom:

1. Recovering ISM index (will tomorrow's number continue to point upwards?)

2. Gold getting beaten like dogs (and still being whipped)

3. Consumer Sentiment index collasped (its always grimmest before dawn) in March and hit a 5 years low in April

4. Fed bailout of BSC is demostration of their resolve not to allow the financial system to sink.

5. Existing home sales rising suggests possible start of the bottom in housing market.

6. Extremely steep bond yield curve suggests that smart money needs to move back into value stocks soon. (which is already rising as money moved back to equities from bonds)

7. GDP has not gone negative despite widespread speculation on an academic recession. (Even the recent Q1 GDP turned in positive despite widespread pessimism)

8. Capitulation in the job market with an 80,000 loss in March.

9. Biggest jump upwards in the Empire State Index in 5 years.

10. Inflation coming in inline with expectations.

11. Capitulation in the housing development market signalled by a 17 years low in housing start number.

12. Capitulation in the housing sales market as signalled by a multi-year low new home sales number.

13. Jobless claims decreasing, signalling an economic pickup.

14. US dollar demostrating clear signs of strength.

15. The VIX getting below 20 once again.


TECHNICAL ANALYSIS
The Dow went for the 13000 resistance level today just to find that it simply could not break it as it is already in a short term overbought condition. In fact, today's market action did nothing but close the Dow sideways once again with a hint of bullishness by making a higher high and a higher low. In fact, stock options traders would have been able to make a quick one day profit today relatively risk-free. There are many ways to trade stock options... see my tutorial on Options Trading Styles. Those of you who do not know what stock options are all about and want to learn the basics, you may want to go through my free Options Trading Basics Guide. Ok, back to our technical analysis. From the Dow's proximity to its 200 days moving average, which is historially a strong resistance level as well, the obvious strength of the 13000 resistance level (demostrated through 2 failed attempts on 24 April and today), as well as the short term overbought condition of the Dow, I would conclude that the path of least resistance is a pullback to probably around 12650 before rebounding to challenge these resistance levels again. I would not expect a surprise break out these few days as the last of the bears would certainly want to still sell into any display of strength.


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The BIG Day!

What a turbulent market tomorrow is going to be with the GDP number as well as the FOMC release all in one day! (see economic calendar)

The market has been preparing for this day with two sideways days so far. Both releases are extremely uncertain and can change the course of the market. One of the signs of the bottom that I have been listing for the past 3 weeks was that GDP has not turned negative despite widespread talk of recession. However, if GDP turns negative tomorrow, one of the biggest reason why the market is holding up could be negated and the bulls could give up. Investors are also expecting a final 25 basis point cut to fed fund rate tomorrow afternoon. If we get it, the market could continue its way higher. If not... well, what do you think? I would certainly go delta neutral on my biggest positions today.

Sideways Before Fed Release...

FUNDAMENTAL ANALYSIS
Market closed largely sideways today ahead of Wednesday's Fed release. Obviously, tomorrow's chain store sales and consumer confidence index are not expected to shake the market very much (see economic calendar). Investors are expecting a final rate cut of about 25 basis points from the Fed this time round. Why final? Any further rate cuts below the 2% mark is going to do nothing but set up the economy for yet another housing bubble down the road. That was the mistake Greenspan made that all of us are paying for now. Holding the fed fund rate at about 2% is enough stimulus for the economy to stage a recovery using our present (albeit primitive) economic model. For those of you still thinking that the market is going sideways and not recovering, do you know that the Dow gained 5.36% this month? There is obviously much bullish undercurrent already reflected in the data and it is now up to investors to catch up on it.

TECHNICAL ANALYSIS
The Dow closed sideways today as expected. In fact, with the Dow in short term overbought position, it takes a miracle to see a break above the 13000 mark. I would suspect that the market is going to interpret the economic data over the next few days negatively, bring the Dow back down into short term oversold condition before a real attempt at the 13000 level can be made. In fact, we saw the same pattern when the Dow was attempting to break the 12750 level resistance level. It took a dive on 11 April, bringing the Dow down into short term oversold before it mustered enough energy to break the resistance level. Another bullish indication to add today, the VIX is back down to where it was before the correction started, which indicates that the panic is over and some steady growth may be expected ahead.

So, let's recap my signs of the bottom and add the new item to it:

1. Recovering ISM index

2. Gold getting beaten like dogs

3. Consumer Sentiment index collasped (its always grimmest before dawn)

4. Fed bailout of BSC is demostration of their resolve not to allow the financial system to sink.

5. Existing home sales rising suggests possible start of the bottom in housing market.

6. Extremely steep bond yield curve suggests that smart money needs to move back into value stocks soon. (which is already rising as money moved back to equities from bonds)

7. GDP has not gone negative despite widespread speculation on an academic recession.

8. Capitulation in the job market with an 80,000 loss in March.

9. Biggest jump upwards in the Empire State Index in 5 years.

10. Inflation coming in inline with expectations.

11. Capitulation in the housing development market signalled by a 17 years low in housing start number.

12. Capitulation in the housing sales market as signalled by a multi-year low new home sales number.

13. Jobless claims decreasing, signalling an economic pickup.

14. US dollar demostrating clear signs of strength.

15. The VIX getting below 20 once again.

Totally Heavyweight Week Ahead...

WELCOME BACK!

It is going to be an extremely heavyweight week ahead with the GDP, FOMC decision, ISM index and the Job report ALL IN ONE WEEK! (see economic calendar) Such a heavyweight week can only mean one thing... Volatility. No matter how the numbers read and what decision the Fed makes, the market is going to move strongly.

On the weekly charts, the Dow is also up against its 30MA resistance level of about 13000. The Dow is already slightly overbought on a weekly basis right now, making it doubtful if the 13000 will be broken within the next few days. So said, I am maintaining my mid term bullish outlook on the market. Let's see what adventure the rest of the week brings.

Bulls Creeps Nearer To The Next Hurdle...

The Bulls won a glorious battle today as oil took the biggest single day hit of the month. The energy sector is also the loss leader today. Like I mentioned endlessly over the past 2 weeks, the bulls cannot have real strength unless oil and gold come down. Gold already begun a fresh bear trend and oil is all that is left standing. Today's correction in oil may or may not be meaningful at all. If oil rebounds tomorrow, today's correction would stand for nothing. If oil continues lower tomorrow, it may visit a short term support ($115) before deciding where to go. In short, don't expect a one day resolution. This has been a totally sideways week so far... could we see the Dow break to upside tomorrow, closing the week higher? I see it as a high possibility event as the Dow has made higher highs and higher lows for 2 consecutive days so far, which is a short term bullish pattern. Supporting this optimistic outlook is also the huge gain in the US dollar today, a further capitulation in new home sales and a drop in jobless claims. Especially important today are the drop in jobless claims and the recovering US dollar. Jobless claims is one number that drops as the economy picks up and a stronger dollar would certain help fight inflation, enabling stability and growth.

So, let's recap once again our signs of the bottom:

1. Recovering ISM index

2. Gold getting beaten like dogs

3. Consumer Sentiment index collasped (its always grimmest before dawn)

4. Fed bailout of BSC is demostration of their resolve not to allow the financial system to sink.

5. Existing home sales rising suggests possible start of the bottom in housing market.

6. Extremely steep bond yield curve suggests that smart money needs to move back into value stocks soon. (which is already rising as money moved back to equities from bonds)

7. GDP has not gone negative despite widespread speculation on an academic recession.

8. Capitulation in the job market with an 80,000 loss in March.

9. Biggest jump upwards in the Empire State Index in 5 years.

10. Inflation coming in inline with expectations.

11. Capitulation in the housing development market signalled by a 17 years low in housing start number.

12. Capitulation in the housing sales market as signalled by a multi-year low new home sales number.

13. Jobless claims decreasing, signalling an economic pickup.

14. US dollar demostrating clear signs of strength.

Don't wait until you can feel it on the streets before calling a market recovery.

Wil Oil Ever Retreat?

OIL ANALYSIS
Just when oil price showed some signs of retreat, US crude oil inventory dropped more than expected, spurring oil price up once again, challenging the $120 per barrel mark. What would cause oil price to drop? When the US dollar starts appreciating and if demand for oil drops significantly like it did back in the original oil shock of the 70s. We don't have either right now. How about supply side? How about an OPEC production boost? Certainly that would help bring down oil price as well? 2 things here; 1. If you are OPEC ministers making huge bucks while drilling the same amount daily, would you boost production, incur higher capital cost just to make fewer bucks per barrel? Certainly not. 2. OPEC has already decided not to talk about production changes until their next meeting in September! So, we can put that on the shelf for now. Well, like I always said, the only people Henry Ford and the Wright Brothers made really rich are the oil producing people.

TECHNICAL ANALYSIS
The Dow spent another day sideways today, making a slight higher high and higher low. This makes it a slightly bullish sideways day. All these sideways movement are occurring with the Dow retreating from overbought position, which makes it a good thing as a retreat back into the oversold region would certainly help the Dow break out of its current lobotomy and challenge the 13000 resistance level. Immediate short term support for the Dow is at the 12500 level, so a retreat back down to that level before rebounding for the 13000 does seem reasonable as well, so there is nothing to panic about.

Another Oil Shock?

FUNDAMENTAL ANALYSIS
The Dow retreated by 104.79 points today as crude oil price continues to rise. In fact, crude oil has topped $118 per barrel today as the continued retreat of the US dollar discouraged any increase in production, forming vicious cycle of price increase. Does this sound all too familar? Yes, this is almost a perfect re-enaction of the 1970s oil shock where oil prices shot as high as 3 times higher on the weak dollar and US economy. HOWEVER, those of you who are aware of that event should know how it ended... yes, they ended in oil gluts where the the demand for oil dropped so drastically that crude oil price have to come straight down. In fact, the rush to the tar pits in Canada for an alternate fuel right now was exactly what happened back in the previous oil shock in an effort to reduce demand on light sweet crude. Examining our situation right now, crude oil is definitely still in hot demand despite an already weak and battered dollar. How will this oil shock end?

Investors also didn't get the optimistic existing home sales number that is so desperately needed to rocket this rally today. March existing home sales continue to drop 2% for a 19.3% drop in the past year. Certainly there are signs of the end of the housing crisis but it is not showing up strongly in the numbers yet. But remember, this is only 1 of my 12 reasons why the market is ready for a recovery. I still believe the fundamentals are in place for a recovery in the stock market but if crude oil were to shoot straight up for the $150 mark, there would definitely be a widespread effect in both the stock market and the economy, so traders still need to be nimble.

TECHNICAL ANALYSIS
We didn't get the strong follow up that we would like to see today but instead, the Dow looks like it has entered the phase of establishing a support level on the previous resistance level of 12750 right now. After a stock or the market breaks a strong resistance level, it would pull back down to that resistance level again in order to establish a support level where that previous resistance level was. This is where we want to see investors buy aggressive whenever that level is reached instead of the previous behavior of selling whenever that level is reached. Aggressive selling or buying at certain price levels are what creates support and resistance levels. This is an equally uncertain and dangerous phase. If it fails to establish a firm support level, it might laspe straight back down below 12750 significantly, making 12750 a resistance level once again. In real life, it means that if investors start selling off once again at around the 12750 level instead of buying into it, we would see the Dow lower once again as the pattern of selling at 12750 returns. For now, we would want to see buying at around this level and the Dow to move sideways along 12750 for a few days in order to establish a support level before rebounding. This will better ensure the sustainability of the recovery.


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Quiet Start For A Quiet Week...

The Dow ended sideways (-0.19%) today on extremely low volume. Definitely a quiet start for an extremely quiet week with no heavy weight economic release scheduled. This kind of Monday makes traders feel like the market was in a long weekend. The movers for the week are expected to be the housing numbers (see option trader hq) and investors (myself included) would definitely like to see positive numbers as a sign of recovery in the housing market.

Bulls Broke Out! Feel The Rage!

YES! The Bull breakout that I have been waiting for so long has happened at last with the Dow closing up 228.87 points to 12849.36, breaking the Bear's 12750 resistance level decidedly and on rising volume! This is an unambiguous trashing of the Bears today as they rush to cover their shorts, adding on to the bullishness.

I must be the first to admit that I was wrong as well.

I thought the bull run would go into full swing only after oil take a beating, but no, oil was up today and so was stocks! This surprising turn of events does require a good follow up on Monday as investors continue to observe the effects of above $115 oil. $115 oil, adjusted for inflation, was the price region oil was in during the oil shock of the late 70s. And we all know how that ended.

Short term stochastic for the Dow is still slightly off the overbought region, suggesting more strength to come next week before it pullback a little. This week has been extremely exciting for the Bulls as the Dow made its biggest weekly gain of 4.25% of 2008! This also started the up led coming off the rounded bottom formation that I spoke of last week. In fact, the Dow has also held up strong above its 30days moving average since late March and such patterns occuring after a correction is also what signals a recovery. The next resistance level to conquer is the 13000 level, which is denoted by the weekly 30 period moving average. I think a slight pullback would take place at that level before the market make another breakout. So, is this the start of a full scale bull run? I don't think there will be an explosive rally but a long drawn out recovery has definitely begun.


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The Final Charge Tomorrow?

The Dow closed only slightly higher today, which is to be expected after such a huge run up yesterday. The bears were largely in control for the first half of the morning before the bulls fought back and brought major indices back to close slightly higher. All these happened along with mixed economic data and earnings release. Jobless claims and leading indicators both turned in inline with expectations while the Philly Fed turned in worse than expected. All in all, a draw day. Oil continues to make new high while gold continue to come under some pressure. The scenario that I have been painting since last week continues to be. I would expect a full scale breakout to occur along with a sharp correction in oil prices. Oil may be scarce but not scarce enough to justify a bubble, and yes, what you are looking at now is definitely an Oil Bubble.

April options expiration is tomorrow, so those of you holding April stock options should take note. It is definitely going to be a volatile day tomorrow as well. I don't think we will see a full scale breakout on a Friday and this could be a good time to put on some protection for your biggest positions ahead of the uncertain weekend.

Feel The Bulls Charge!

The bulls got another boost from the market today as inflation came in inline with expectations. We also saw a capitulation in the housing development market today as housing start numbers came in lowesst in 17 years! Such mulit-year-low data are what usually precedes a recovery. In fact, these are another 2 reasons to add to my list of signs of the bottom! So, here it is again:

1. Recovering ISM index

2. Gold getting beaten like dogs

3. Consumer Sentiment index collasped (its always grimmest before dawn)

4. Fed bailout of BSC is demostration of their resolve not to allow the financial system to sink.

5. Existing home sales rising suggests possible start of the bottom in housing market.

6. Extremely steep bond yield curve suggests that smart money needs to move back into value stocks soon. (which is already rising as money moved back to equities from bonds)

7. GDP has not gone negative despite widespread speculation on an academic recession.

8. Capitulation in the job market with an 80,000 loss in March.

9. Biggest jump upwards in the Empire State Index in 5 years.

10. Inflation coming in inline with expectations.

11. Capitulation in the housing development market signalled by a 17 years low in housing start number.


TECHNICAL ANALYSIS
The obvious danger here, which those of you reading my blog daily would already know, is the 12750 resistance level for the Dow. The Bear's 12750 defense line has proven so far to be impregnable but let's not forget that the last 3 attempts to break that level, which obviously failed, were made when the Dow was already in short term overbought position! That kind of position simply does not carry the strength to break resistance levels! But now, the Dow has just gotten off its short term oversold position when it is so near to the 12750 level, suggesting that it still does have a lot of juice left for that final push! I am more optimistic than ever, not to mention the profits that I have already starting to collect in my call options.

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Optimism Ahead Of CPI...

FUNDAMENTAL ANALYSIS
The better than expected Empire State Index number today totally erased the worse than expected Producer Price Index numbers, leading the Dow higher by 60.41 points. The Producer Price Index (PPI) or sometimes known as wholesale inflation measures inflation at the wholesale level felt by manufacturers through higher raw material cost. Today's PPI showed that most of that inflation at the wholesale level was due to higher crude oil prices, which we already know and that will only get worse as the dollar gets beaten down further. Does this mean a higher CPI number tomorrow? Not necessarily. Even though corporations can transfer these higher costs down to consumers through price hikes that raise CPI, most don't do that. Most corporations raise prices only when it starts hurting their bottomline significantly. That is why PPI never translate directly into higher CPI, even though it may do so years down the road if the trend persists.

The Empire State Index is designed as a forward looking indicator of economic sentiments and outlook through a survey done on executives in New York. It is gaining importance lately due to its uncanny ability to lead the ISM index, which is an extremely heavyweight index. In fact, the Fed looks at the Empire State Index as part of their list of considerations as well. A healthy jump in the Empire State Index always helps lift stock prices especially near bottoms and the Empire State Index jumped by 23 points today! That is the BIGGEST jump in 5 years! Yes, you know what I am going to do next... I am going to add it to my list of signs of the bottom!

On the negative side, crude oil continues to push past the point of capitulation into new highs due to the ever weakening dollar. Not so long ago, Washington held an emergency economic meeting simulating and exploring the effects of $150 a barrel oil. Obviously, $150 a barrel is a scary thing which has widespread economic impact. Crude oil is trading at $113.53 at the time of this writing and we are definitely in uncharted territory right now. Can the market rally with oil rising? Definitely it can but oil needs to be rising at a moderate rate at a moderate price and we are certainly at the top end of that range right now.

Its been a while since we last recap my list of signs of the end of the correction, so, let's look at it again, adding the new sign today and amending some of the old ones:

1. Recovering ISM index

2. Gold getting beaten like dogs

3. Consumer Sentiment index collasped (its always grimmest before dawn) 3. Consumer Sentiment index collasped (its always grimmest before dawn)

4. Fed bailout of BSC is demostration of their resolve not to allow the financial system to sink.

5. Existing home sales rising suggests possible start of the bottom in housing market.

6. Extremely steep bond yield curve suggests that smart money needs to move back into value stocks soon. (which is already rising as money moved back to equities from bonds)

7. GDP has not gone negative despite widespread speculation on an academic recession.

8. Capitulation in the job market with an 80,000 loss in March.

9. Biggest jump upwards in the Empire State Index in 5 years.

Remember that these are signs of the bottom of the market, not signs that the economy is going to recover immediately. The stock market is a predicting mechanism, not a reporting mechanism and it usually recovers first before the economy does. Of course, there is reflexivity at work in this complex relationship as well which might actually make an economic recovery a self fullfilling prohecy of a recovered stock market.

TECHNICAL ANALYSIS
The Dow closed largely sideways with a bit of positive bias by the end of the day along with healthy after-market futures activity. It seemed to have found a strong support along its 30 days moving average as well, which is a good sign. Short term stochastics are now going into oversold territory and could muster enough momentum for the Dow to make a break to upside very soon. All my indications still point sharply bullish suggesting that there are definitely more upside than downside potential. As a smart trader, you always want to be on the side of the winners no matter how grim it looks right now.

The Final Straw Continued...

FUNDAMENTAL ANALYSIS
What was shaping up as a really terrible day in the pre-market futures ended up with the market largely sideways, a draw day. The Bulls beat back the pre-market Bears when retail sales turned in far better than expected, up 0.2% instead of the widely speculated negative number. Is consumerism returning to the great country? Remember, consumers make up 75% of the economy and if they are coming back, I don't want to bet against them. Another good reason for the draw day today is the PPI and CPI numbers that are going to be released over the next 2 days. Both numbers are going to decide if the Fed is going to cut further and yes, investors still expect a rate cut right now.

Remember my final straw argument? (If not, please read my posts over the last 3 weeks) Oil and Gold used to be what I call the final straw hindering a full scale rally and now, only Oil stands. Gold has gotten so high that people are not only selling gold futures and shares but actually selling their jewelries! This has put gold back down into a new decending channel, so, so long Gold. However, offsetting the retreat in Gold is the gains in Oil. Oil continues to make new highs as more geo-political factors reinforced the positive bias in the market. Until we see oil lose favor, the rally is not likely to start in force. I will be keeping my eyes open on this one.

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TECHNICAL ANALYSIS
The Dow came back down and found support along the 30 days moving average while the point and figure charts still held a nice rising bottom, so, the bulls are still far from being killed and certainly there are a lot more upside potential than downside in the market right now. Does that mean that the financials are coming back right now? Not just yet. The financials as a sector as represented by the XLF is still in a strong bear trend. This is the time for sector picking like I mentioned over the past few days. There are a lot of sectors working right now that it doesn't make sense to bang your head against the financial wall.

The Final Bout...

The epic battle between the bulls and the bears have gone on for weeks now without a clear resolution. Even last Friday's one day bear victory due to GE's disappointing earnings does not ensure the bear's success. I think this is going to be the week that marks the final bout between the bulls and the bears due to the number of heavy weight releases coming forth this week (see economic calendar). The CPI, Housing Stars, Jobless Claims as well as the Leading Indicators are all going to be moving the market. If they turn out lousy, the bears will win and if they turn out great, the bulls will win. We are now at a period of time where investor expectations are building up to upside and any signs of a real recovery will start an unstoppable self-reinforcing process called a rally. If the numbers still does not catch up this week, those expectations may turn and start a self-defeating process feeding on those numbers. Stock Options expiration this Friday is definitely going to add some volatility to the market as well. The rounded bottom reversal on the Dow weekly chart that I presented last weekend (please go see it again) remains intact suggesting that a turn around remains a high possibility. Happy trading ahead!

When GE Sneezes The Market Catches A Flu...

The old adage that says that when GE sneezes, the market catches a flu has some truth behind it afterall. GE disappointed the market with terrible earnings today and fell 12.79% in a single day. In fact, this is the largest single day drop since the crash of Oct 1987 (Black Monday)!! Being the second biggest cap stock in the US Market (the biggest being Exxon Mobil) and the last surviving pioneer component of the Dow Jones Industrials Average, any big movements in the stock price of GE will definitely move the market. Being also one of the most important conglomerates in the US, a disappointment in earnings would lead to doubts as to the profitability of all other companies in general, leading to a quick revaluation of their stock prices, which was what we witnessed today. The good news is this, this drop is definitely overdone as investors rush to seal in some of the precious profits so far ahead of the weekend. At 17 times multiple, GE's definitely slightly oversold here.

This is definitely strike 2 to the bulls as their short term defense line of 12500 was broken decisively and with rising volume. The good news here is that we got a capitulation in the consumer sentiment numbers today as it hit the lowest point since 1982. Such multi-year lows usually mark important turning points. Some readers are also asking me how a rally is possible when bad news seems to be coming in torrents. Well, the reason is simple... the market has priced in these mess since Nov 2007 and as a discounting mechanism and due to reflexivity, these bad news are beginning to surface more and more now, justifying the valuation in the markets, which is a good thing.

Even though an eruption is highly possible, what I am seeing here is a pattern similar to what happened back in 1987 after Black Monday. The Dow didn't go straight up from there but begun an extremely slow process of recovery on an extremely gradual positive channel all of 1988 until the bulls returned in force in 1989. With investors this informed and educated, this process may take a lot shorter than before. Even in this scenario, it seems highly unlikely for the market test the lows again as a gradual positive channel has already been formed.

This may take longer than I expected to resolve but there definitely are strength to be found in sector rotation. This is the market for only 2 kinds of traders... long term investors taking advantage of the discount and extremely nimble and skilled sector stockpickers. Get my picks here!

The Epic Battle Continues...

The Bulls pushed the Bears back from their critical 12500 defense line today... ON RISING VOLUME! Rising volume shows that more and more investors are signing up to the bulls camp at last. So far this week, the Bulls and the Bears have been deadlocked for control, making a record 7 sideways days for the Dow. The market action today are attributed to the fact that both the bull camp and the bear camp recieved some additional ammunition, with the bulls having slightly more than the bears. On the Bear Camp, the widening trade gap widens unexpectedly and is expected to affect the future GDP numbers as exports is one of the most significant contributor to GDP lately due to the weak dollar. The real question is, is it enough to push GDP into negative territory in order to start an academic recession? On the Bull Camp, jobless claims collasped today, indicating a recovering job market. A recovering job market is definitely a leading indicator for a recovering economy. Oil and Gold also retreated today with gold clearly forming a distribution pattern which could lead lower. So, the Bulls did get more ammunition than the Bears today.

I am surprised that some readers are still asking me if the Dow will visit the Jan lows again today when that is now such a distant possibility that I don't bother to talk about it anymore. The bulls are clearly resilient and in control of the situation and nobody should want to bet against them. There are clearly only 2 choices for investors right now... 1, stay out of the market until this battle gets resolved, which of course means that you would have missed the big moves. 2, risk just a small portion of your money on the market using stock options so that you can capture the gains without excessive risk.

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Bears Pushing The Vanguard...

Yet another draw day today in this drawn out, epic battle between the bulls and the bears. The Bulls are holding the 12500 line while the Bears are holding the 12750 line. Today, the Bears seemed to have a slight upper hand with the breakout in oil price, pushing towards the Bull's 12500 line. Historically, sideways days rarely last for more than 5 to 6 days and if history is anything to go by, we should see a clear winner within this week.

Another Draw Day...

The bulls and the bears have another go at each other ending with the Dow down modestly by 35.99 points in yet another sideways day. The bears poured everything they had at the bulls with the lousy earnings but the bulls held up yet again as oil seem to struggle at its current short term resistance level. Crude inventories tomorrow (see economic calendar) is going to be critical. If supply is higher than expected, oil prices may hold at the current levels but if supply is lower than expected, oil prices may go into a short term rally, putting pressure on the equities market. Let's see how this plays out. This is certainly the most critical juncture in the stock market since the crisis begun.

Gallant Charge Against The 12750 Garrison...

The bulls staged a gallant charge against the strong 12750 bear garrison and was stopped short. Is this a really bad sign that the 12750 resistance level is not going to be broken? Not necessarily. The earnings season that started today put some pressure on the financials and that has been widely expected so far, hence the low trading volume in the market today. If the bulls are able to stage a charge with such a low volume, imagine what happens after the volume starts kicking in. The bears were able to stay strong today because the "last straw" (if you have been following my posts for the past 2 weeks, you would know what the last straw is) got a boost today from OPEC's refusal to talk about further production boosts until September, giving some support to oil prices. Oil is once again at a strong resistance level, failing which we could see it come down once again. I remain optimistic until I see significant changes.

The BIGGEST Week Of 2008!

FUNDAMENTAL ANALYSIS
In case some of you guys are living on Mars, the Dow posted its BIGGEST one week gain of 2008 this week! The Dow was up 3.22% this week and held up its sideways behavior today DESPITE a horrific jobs report with unemployment beating estimates by 0.1% (5.1%) and job loss at a horrific 80,000 jobs for march! In fact, that is the most horrible number we have seen since 2003! So why is the market still so strong and bullish? That's because we need to see a capitulation in the jobs market before the stock markets can stage a recovery! On top of that, the jobs report is a LAGGING indicator! Lagging indicators tells you what HAVE HAPPENED, not what is to come and that means that the WORST job loss since 2003 is already BEHIND us! Got it? Remember what happened back in 2003 when job loss is this high? Yes, the stock market staged the biggest rally of the decade! Ok, so, this is yet another bullish number for the stock market and another reason the bullish volcano is erupting... let's take stock of the signs so far again:

1. Recovering ISM index
2. Oil and Gold getting beaten like dogs
3. Consumer Sentiment index collasped (its always grimmest before dawn)
4. Fed bailout of BSC is demostration of their resolve not to allow the financial system to sink.
5. Existing home sales rising suggests possible start of the bottom in housing market.
6. Extremely steep bond yield curve suggests that smart money needs to move back into value stocks soon. (which is already rising as money moved back to equities from bonds)
7. GDP has not gone negative despite widespread speculation on an academic recession.
8. Capitulation in the job market with an 80,000 loss in March.

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TECHNICAL ANALYSIS
Looking at the weekly chart for the Dow revealed an extremely nice phase of accumulation all of 2008 so far. A rounded bottom accumulation pattern can only mean one thing... UPSIDE EXPLOSION! So, what's stopping it now? The 12750 resistance level. If the Dow doesn't break through that level early next week, we could see a slight pullback before the Dow tries it again. Will it visit the Jan lows again? Definitely not! Even from a technical analysis point of view, there is no such thing as a triple bottom (P&F triple bottom is a different thing all together).


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The Critical Jobs Report...

Another sideways day in the market today. Investors are obviously feeling very uncertain about what the jobs report is going to be tomorrow especially with today's jobless claims coming in higher than expected. Coincidentally, the Dow is also right at the doorstep of the strong 12750 resistance level. This means that tomorrow's job report may decide if the Dow breaks above the resistance level and go into the bull eruption I have been talking about for so long or turn around and come back another day. Jobs report is slated for release at 0830am EST tomorrow (see economic calendar).

A Bit Of A Breather...

Totally not strange to see a few sideways days after every huge single day surges, especially with the pull up in gold and oil today. Well, I can only say this... don't be caught in this gold and oil bull trap.

Hear The Bulls ROAR!

FUNDAMENTAL ANALYSIS
As I have expected yesterday, the Dow exploded upwards by 391.47 points on better than expected ISM number!

As I mentioned yesterday, we wanted oil and gold to break short term support and for the ISM index to turn in better than expected and HAAAAALLLLLEEEEELLLLLUUUUJAH! We got both of them today.

Have you ever seen footages of volcano eruptions on TV? If you have, you would have seen those thick smoke and occassional magma spewing just before the grand eruption occurs. I think we are seeing the smoke and magma coming out of the stock market now and that the bulls may just erupt without warning, at least right up to the Jobs report this Friday. Oil and gold continues to get beaten down today, further reinforcing my last straw scenario (see my posts over the past few days). In my post last Thursday, I have already warned oil and gold traders against speculating for new highs and yes, since that post, both commodities have gone south.

Seriously, what surprised me was the readiness and the bullishness in the market even before the ISM numbers were released today! With or without the number, the market was rearing to go! The bulls are raging! This is situation is somewhat unseen of, at least in my professional life as a hedge fund manager.

The ISM index, or rightfully known as the Institute of Supply Management Manufacturing Index is an index measuring manufacturing activity in the US with readings above 50 indicating an expanding economy and readings below 50 indicating a contracting economy. So, what makes the 48.6 today a bullish number? It is a bullish number because the index was at 48.3 in February! The index gained 0.3 points this time round for the month of March, which again reinforced the fact that we have narrowly missed an academic recession and is going into the recovery phase!

So, let's take stock of all the reasons why the bulls are going to erupt so far:

1. Recovering ISM index
2. Oil and Gold getting beaten like dogs
3. Consumer Sentiment index collasped (its always grimmest before dawn)
4. Fed bailout of BSC is demostration of their resolve not to allow the financial system to sink.
5. Existing home sales rising suggests possible start of the bottom in housing market.
6. Extremely steep bond yield curve suggests that smart money needs to move back into value stocks soon. (which is already rising as money moved back to equities from bonds)
7. GDP has not gone negative despite widespread speculation on an academic recession.

As I mentioned the first time I raised the eruption theory back on 23 March, the force of an eruption is proportional to its pent up period and yes, stocks have been pent up long enough and the eruption could take the bears by surprise. Those of you who took a toe dip using stock options like I have recommended over the past week, would have made some safe risk-limited profits. Hang in there and keep the faith!

TECHNICAL ANALYSIS
The Dow rallied 391.47 points, not on a volume surge but on a sensible rising volume! That made a world of difference! In fact, we had 3 single day rallies of over 300 points this month so far (including today's) and every of those makes higher highs and lows, which again, is extremely bullish. That proves that the bulls are increasingly optimistic while more investors from the bear camp re-examine the situation. Like I mentioned yesterday, a break upwards today would spell a visit to the 12750 resistance level. That was an extremely strong resistance level that brought down 2 previous relief rallies on 4 Feb and 28 Feb. What I would like to see is a strong follow up tomorrow which takes the Dow straight above the 12750 line like it doesn't exist. After that, we should see a slight pullback down and then a new bull trend starts. :) I am at my most optimistic since this crisis started so let's start the ball rolling!


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