Stock Market Analysis

Sunday, May 31, 2009

Market Surge on GDP but No Breakout...

The Dow made an impressive run for the 8500 resistance level on a favorable revision of Q1 GDP last Friday, surging by 96 points. However, the Dow once again stopped short of the 8500 resistance level without a breakout. Good news is that short term bullish momentum on my indicators are rising once again, which means that the 3 weeks of short term neutral trend could have exhausted the bears enough for the bulls to stage a breakout. However, speculations aside, we need to see the breakout actually happen before sounding the trumpets.

So far, the economic data does support a recovery outlook. More and more investors are now convinced that the way ahead is especially optimistic. In fact, stock markets in emerging market nations such as Russia, India and China has moved for ahead of the US market. In fact, I am more and more convinced that we are witnessing a reversal here even before the Dow do that all important pullback that will identify this intermediate rally as either a secondary wave up in a primary Bear market or a real bullish reversal.

This is going to be a heavy weight week(see Stock Market Calendar) with the Jobs Report on Friday and the ISM index on Monday. Yes, we get these 2 important numbers on the first week of every month. Will we see a reversal in the unemployment rate to set the unemployment rate reversal rally into action? Consensus is for unemployment rate to rise above 9%, which is totally possible with big giant companies still laying people off. Has the stock market moved too early then? Not really. The stock market is a discounting mechanism, which means that it is pricing in future value instead of what is happening right now or what has happened. The unemployment rate could really be higher this time round but what investors are pricing in right now is the recovery that will follow.

The Dow continues to be in a primary bear trend, intermediate bull trend and short term neutral trend.

Thursday, May 28, 2009

Dow Up on More Optimistic Data

The Dow gained 103 points today as Durable goods order and Jobless claims turned in better than expected. Especially important is Durable goods order turning in a positive number this time round, indicating renewed economic activities.

Sadly, even though both economic numbers are important and beat expectations, the Dow merely made another sideways day within the 8500 / 8300 squeeze that I mentioned yesterday without any signs of a breakout. In fact, the Dow fell way short of yesterday's high. Investors are also wary of how tomorrow's GDP number would turn out (see Stock Market Calendar). Consensus is for a rebound, in line with most of the economic data that we have recieved so far. The only question is, has this GDP rebound already been priced into this intermediate rally so far? Yes, the rally has ben strong without strong reasons then... could this be the reason? If it is, investors would have all the reasons to take profit even if the GDP do beat expectations. But one thing is sure, the long term propects for the market looks very good from this point forward. It is the short term swings we are trying to interpret here and to pin point as closely as possible each turning point. My analysis yesterday stands.

Wednesday, May 27, 2009

Short Term Neutral Trend Continues...

As expected, the Dow did not have the strength to stage a breakout today and gave back 173 points. Despite the store sales and existing home sales coming in stronger than expected, investors are simply out of steam as much of the enthusiasm regarding the economic recovery has been exhausted in that incredible 2 months rally into an intermediate bull trend.

Trading volume continues to drop as relative strength continues to weaken. The 30DMA test is now imminent. The Dow needs to break either the 30DMA to downside or the 8500 level to upside now as both levels have created a squeeze the size of today's trading range. With the weakening technicals, I speculate that a downside breakout is more probable especially in line with the fact that this intermediate bull trend is way overdue a pullback. That pullback is critical as it would reveal whether or not investors are ready to make a real reversal of the primary bear trend. Investors are playing the waiting game now, waiting for a better re-entry on a pullback while the bears are waiting to resume the primary bear trend. The question is, which force is now predominant? Nobody can tell until we see how low the pullback goes. If the pullback fails to make a new low before rebounding, then we would be witnessing a bullish reversal in accordance to the Dow theory.

Tomorrow's Durable Goods order and Jobless claims might be the catalyst for the breakout as these are extremely important economic numbers that investors are watching right now (see stock market calendar).

Tuesday, May 26, 2009

Consumer Confidence Returning?

The Dow surged 196 points today as the consumer confidence number beat estimates by a mile (see stock market calendar). All major indices climbed steeply from 10am onwards right after the number was released. Yes, this is the biggest rebound in consumer confidence since this crisis begun and a decisive rebound at this point really does suggest a bottom to this economic crisis. So, is consumer confidence returning for real? Are people spending again? Well, traditional economics suggest that jobs need to pick up first before spending does. Jobs are still very much in the ditch right now but hey, the stock market is forward looking; Obviously investors are pricing all that in right now.

So, did anything change for the Dow today? Really, Nothing. The Dow was once again stopped short at the 8500 level in a continuation of the short term neutral trend. Today's surge did nothing to change that trend and did nothing to beat the 8500 resistance level. Relative strength continues to weaken as average trading volume continues to decline. However, a rebound off the 30DMA is always a good sign. At least we know that this short term neutral trend is not about to turn around into a short term bear trend to end the current intermediate bull trend yet. That is the only positive today. With the weakening in the technical indicators despite a gain today, the Dow just isn't displaying the kind of strength needed for a breakout yet. For now, the Dow continues to be in a short term neutral trend, intermediate bull trend and a primary bear trend.

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Monday, May 25, 2009

Dow Under Heavy Resistance

The Dow experienced heavy resistance at the 8500 level for the past 2 weeks. Its short term has also turned neutral bounded by 8500 and 8250 along with a steadily declining trading volume. This certainly flashes a red light on the intermediate bull trend. Its 30DMA has also caught up and the Dow is now trading right on top of it. The 30DMA is an extremely important support level for intermediate trends and long term trends and a significant break below the 30DMA would spell the end of the intermediate bull trend (every technician would have their own way of defining this point). The Dow needs a determined break above 8500 to continue the intermediate bull trend and this week's data may be the key to deciding if that happens or not.

This is going to be a pretty heavy week with important data such as the consumer confidence tomorrow, retail sales and existing home sales on Wednesday, Durable goods and jobless claims on Thurday and GDP on friday (see stock market calendar). No matter how these numbers turn out, we can be sure that this is going to be a volatile week as well.

For now, the Dow is in short term neutral trend, intermediate bull tend within a primary bear trend.

Sunday, May 24, 2009

Memorial Day

I am back from my one weekend holiday at last! :) Monday is Memorial day and is a US market holiday so its going to be holiday for me again. Please join me again tomorrow for analysis of the market for this coming week.

Thursday, May 14, 2009

Why was the Dow up When Jobless Claims were up?

Yes, the Dow was up 46 points today and the Nasdaq composite up 25 points on a day where jobless claims were higher than last week. What happened?

Bullish stocks do not go up in a smooth slope neither do bearish stocks go down in a smooth slope. This is the same with almost everything that can be charted in the stock market. Jobless claims chart looks very much like a stock chart with short term and intermediate term retreats within every bull or bear trend. What the Jobless Claims number did today was one of those very healthy pullup within a new bear trend. This is because it is lower than the jobless claims number 2 weeks ago, forming a lower low (last week) and a lower high (this week). This is an extremely healthy pattern which should promote some investment confidence. Of course, things would have been VERY different if the jobless claims number today was higher than 2 weeks ago.

The Nasdaq composite also rebounded from its 30DMA today, forming a classic short term pullback within an intermediate bull trend. This is the kind we saw back in the pre 2007 bull trend. Very healthy and will continue the bull trend if followed up tomorrow.

Tomorrow is May equities options expiration day (see stock market calendar) along with the Empire State Index and would be a slightly volatile day. How the market close tomorrow would be important to the readiness which the Dow would reach the 9000 points level.

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Wednesday, May 13, 2009

Nasdaq Takes a Beating...

What was just a normal down day within a short term bull trend for the Dow was a beating for the Nasdaq today. The Nasdaq composite dived right for its 30DMA today, down by 3% while the Dow was down only 2.18%. 2.18% and 3% may not sound very different as numbers but if you look at the charts, you will see a big difference. That is of course the best thing about charts; they put numbers into perspective and context.

The Nasdaq composite is right on its 30 days moving average today and if it breaks below that line, it will end its short term bull trend officially. Such a failure around its 200 days moving average does signal the possible start of an intermediate pullback, the one we have been talking about over the past couple of weeks, if the 30DMA is broken. There was only 5 winning stocks in the Nasdaq composite today with APOL gaining 1.99% but correcting back down by over 2% after hours.

All of these coincided with the lower than expected retail sales number today (see stock market calendar). Yes, don't expect consumption to increase when jobs hadn't. This could go on for sometime.

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Tuesday, May 12, 2009

Battle of the Bulls and Bears...

The US market was mixed today with the Dow closing up by 50 points as the epic battle between the bulls and the bears continued...

We have seen this battle between the profit takers and investors jumping in on all the economic recovery news since Monday. The profit takers would take the market lower during the first half of the day and then buy back by the second half. Market was also under some pressure due to the rise of crude oil prices on the drop in the dollar. My economic recovery prediction earlier this year really look like its coming to be and with that, we could expect all the same old stories of the past to come back to haunt us again soon, only this time, stronger; weakening dollar, inflation, high oil... etc...

For now, the market continue to be resilient and the Dow continue to muster energy for a break towards the 9000 resistance level, which is going to be a strong one. That was the band within which the Dow was caught for several months not so long ago and this time, the 200DMA joined in the fray. 200 days simple moving average has a long history of being a strong resistance/support level for both the market and individual stocks. In fact, the 200DMA has provided support for the 2005 - 2007 primary bull trend and has acted as resistance for this market crash in May 2008 as the Dow collapsed right after failing to breakout. Only thing is, this time, the Dow does look like it has a fighting chance and a significant breakout and holding above the 200DMA may signifying a reversal. However, I do not think that the breakout will be like hot knife through butter and I do expect a significant pullback before a breakout. However, these are only my predictions and opinions based on technical cycles which may not play out exactly by the book. I usually take the cue on actual breakouts rather than predictions. I believe that the stock market isn't a place for soothsayers.

Investors will be watching out for tomorrow's retail sales (see stock market calendar) with consensus expecting a positive number of 0.1% up from last week's -1.1%. The weekly retail sales is an extremely volatile number which can go between positive and negative all the time. This is why analysts prefer to look at its yearly trend instead. If the retail sales number come up stronger tomorrow, it will turn the yearly trend line around, completing a reversal pattern, which is extremely significant.

For now, the Dow remains in short and intermediate term bull trend within a primary bear trend.

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Monday, May 11, 2009

Profit Taking Monday...

US market sold off broadly on profit taking as the Dow corrects 155 points, surrendering last Friday's gains.

It's hard to imagine Monday as a profit taking day, right? Whatever happened to the Monday effect? The Monday effect is a well known market anomaly where Mondays usually continue the trend of the previous trading day. Yes, many market anomalies, including the so called January Effect and the Christmas effect, has become more and more inconsistent lately. Why is that so? Because any structurally defined market anomaly would have been taken advantage of and arbitraged away, let alone widely known and taught market anomalies. This is the argument of the Efficient Market Hypothesis and it seems like it is becoming more and more true. Traders and investors now need to be wiser and more knowledgeable rather than depend on well known market anomalies for trading.

Today's profit taking is nothing to be surprised about and changes nothing. Investors also reallocated part of their assets into bonds as bond yields fell across the board (see bond yield curve). The Dow merely traded within the trading range of the last session, forming a sideways day. The Nasdaq composite struggled at its 200DMA but managed to take back most of their lost ground by session close. Trading volume was also much lower than the last few sessions. Nothing that will threaten the current short term and intermediate term bullish trend is on the table yet.

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Sunday, May 10, 2009

Inflation Data Week...

Every week follow jobs report week is inflation data week when the PPI and CPI are released (see stock market calendar). Inflation week used to be pretty volatile and scary before the crash begun but it has faded into the background lately. Yes, nobody's worried about inflation in a recession, but, this will definitely be the main worry once we get out of this recession.

The Dow broke out of its 30WMA decisively last week, gaining a total of 164 points. In fact, this is the first time the Dow has broken significantly above its 30WMA since May 2008 when the crisis begun going into full throttle. This is definitely a significant event, suggesting a change in nature. The next challenge would be the 9000 points level where its 200DMA is. Again, I do not think its going to go past the 200DMA like it doesn't exist. 200DMAs are extremely strong and important resistance/support levels that is going to draw a lot of buying and selling. For now, I don't see any problem for the Dow to go straight for the 9000 points level. The Dow remains in short term and intermediate term bull trend within a primary bear trend.

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Thursday, May 07, 2009

Banks still in trouble...

Today, despite very healthy jobless claims numbers, the Dow surrendered yesterday's gains by retreating over 100 points after the US government released a report stating that 10 out of 19 banks are still in trouble.

Even though the economy is clearly bottoming out, most banks are still suffering from the mess that they got themselves into. Indeed, some entities can get too big to fail. Banks do need to recover from losses but through their own business activities and not from taxpayer's pockets! Ok, enough politics from me. Jobless claims beat expectations today, bringing its 4 weeks moving average down a 3rd week in a row. This is the first time new jobless claims have retreated so much in this crisis so far. Indeed, this is sure sign that the economic crisis has past its worst. So why is the market still down today? There is a combination of reasons and the most significant I can see is the bank stress test and profit taking ahead of tomorrow's Jobs Report (see stock market calendar).

In the technical sense, Dow's retreat today isn't as much of a retreat as it is for the NASDAQ Composite. The Dow merely continued going sideways but the NASDAQ composite did a significant down day that could turn nasty if followed up tomorrow. So far, such big down days have been false alarms which did not follow up the next day, however, this same thing happening right on the 200DMA does make it look dangerous. We will monitor how the NASDAQ composite behave tomorrow. If it follows up to downside tomorrow, near term support would be the 1600 points level. For now, the Dow continues to be in a short term and intermediate term bull trend within a primary bear trend.

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Wednesday, May 06, 2009

Experts Are Always Late To The Party...

Experts are convinced today during some conference that the US stock market is going to be positive this year, predicting S&P500 of above 1000 points. Where have they been during this 670 to 919 climb? They missed a 250 points climb and are now predicting a lesser than 100 points for the rest of the year... sounds like they are late at the party... AGAIN.

Well, the Dow was raging bullish today yet again, fighting off early profit takers on good volume. It is now right in the 8500 resistance zone and yes, this is yet another highly dangerous zone. The good thing about this intermediate term rally is that it is nice and gradual. It is such gradual rallies that has the power to last. Every up day signifies a gradual victory over the bears instead of a greedy everyone-in kind of move. Investors are probably going to be cautious tomorrow with Job report coming up on Friday (see stock market calendar). I suspect that the reaction will be positive whether the number come up beating or failing expectations. More and more technicians are willing to bet on a peak unemployment reversal recently.

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Tuesday, May 05, 2009

A Bullish Down Day...

The Dow fought a rough battle against the bears today to end the day down marginally by 16 points.

Even though the Dow was down today, it was actually an extremely bullish down day. In fact, this is a down day where the VIX actually ended lower as well. The VIX is a well known "panic indicator". The fact that the VIX ended lower on a down day suggests that this "down day" is more bullish than bearish. In fact, it is extremely common to see a few sideways days following each significant bullish or bearish days as traders consolidate a little before the trend continues.

The 8500 to 9000 region is yet another resistance level for the Dow. This was the congestion zone for the Dow from October last year to January this year. Again, a decisive break out of this zone is necessary for the intermediate bull trend to continue.

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Monday, May 04, 2009

Upside Breakout!

The Dow resolved its short term neutral trend today with an upside breakout of over 214 points with strong volume. In fact, the S&P-500 also turned positive for 2009 today with a 29 points surge! Yes, the market can indeed stay irrational for longer than you can stay solvent.

All of these happened as more positive data was announced from the housing sector. Pending home sale index ( see stock market calendar ) turned in stronger today reinforcing the likelihood that the housing market has indeed reached bottom.

As I mentioned yesterday, the neutral trend so far might have digested the expected short term pullback and we may indeed be witnessing a reversal in the making.

I made 35.4% profit on my call options on MON today as well. Check it out!

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Sunday, May 03, 2009

Roaring Bulls!

The Dow ended the week higher again last week as economic indicators continue to improve despite not beating analyst estimates. In fact, the gain in the ISM index last Friday was the biggest gain in this crisis so far, putting a 4th straight month of gain. ISM index is a big deal because of its correlation with Real GDP. With the numbers so far, we can also expect Real GDP to improve.

So, was all these why the Dow is still so strong? What about technicals? What about the pullback that all technicians are predicting (myself included)?

Yes, even though last week was a positive week for the Dow, we still see very strong resistance in the 8000 points zone, which is now correlated with the Dow's 30WMA. So far, the Dow has been doing nothing more than an short term neutral trend on a daily scale. Which means that it is now preparing for a breakout. The only question remains is the direction. One thing about pullback levels is that if the price chart remains in an extended neutral trend at pullback levels, the pullback itself could be digested by the neutral trend. After it has been completely digested, the previous trend (the bull trend in this case), could resume without the pullback. So far, it looks very likely. The Nasdaq composite is painting a very different picture though. It has been in a short and intermediate bull trend so far, without going into the neutral trend that the Dow and S&P500 has been. This makes it a dangerous candidate (QQQQ) as it now comes up against its 200DMA. The Nasdaq composite could stage a classic pullback as far down as 1600 before deciding on a reversal or continuation of the primary bear trend.

This is a heavyweight week with the Job report coming up on Friday (see stock market calendar). Consensus for nonfarm payroll is of course for a better number than last month but consensus range continues to be very wide, covering the positive and negative zone. Yes, analysts are rarely on the same side of the market. However, consensus for unemployment rate is for a higher 8.9%. This means that analysts are still not expecting peak unemployment rate yet. Yes, peak unemployment is what a lot of technicians and speculators are waiting for before jumping in but with big names still laying people off, it could take some time.

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