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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