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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