Stock Market Analysis

Tuesday, June 30, 2009

Dow Under Heavy Resistance

The Dow retreated 82 points today despite another round of economic data that continues to point towards economic recovery.

In fact, investors are expecting tomorrow's ISM index to show yet another better number of 45 (see Stock Market Calendar). So, why is the Dow still not rallying in the face of all these optimism? This is where the divide between economic outlook and market outlook is clear. Even with optimistic economic outlook, the stock market may not move correspondingly due to technical reasons. What technicals measure is the sentiments and behavior of investors, not the economic outlook. Even in times of great economic outlook, there will be pockets of pessimistic market outlooks, especially for the short term, due to fears of being overbought. Yes, there will come a time in every significant rally that the fear of losing the profits made so far outweighs the joy of more profits. That is when investors starts taking profit and ending rallies. The Dow is currently at that point in this intermediate term rally. This is also what is known as a technical pullback.

The Dow failed today right at its 30 days moving average, once again establishing it as a strong resistance level. A follow up tomorrow could lead to a visit to the 8000 points short term support level very quickly. For now, the Dow remains at short term bear trend, intermediate term bull trend and primary bear trend.

Monday, June 29, 2009

One Good Day...

The Dow gained 90 points today ahead of tomorrow's Chicago PMI number. Yes, this is not only a holiday shortened week but also a heavy weight week full of heavy weight numbers such as the ISM index on Wednesday and Job Report on Thursday (see Stock Market Calendar).

Investors are clearly expecting the optimistic numbers to continue into this round, hence the early buying. Are all these enough to change the technicals? Clearly not yet. The Dow has been stopped right at its 30days moving average line today which is short term resistance for the pullback scenario. Chances are slim that the Dow will find the strength to break upwards tomorrow no matter how the Chicago PMI turned out but if it does, it merely goes back into a short term Neutral trend with not clear strength to carry the intermediate term rally on much longer. If it fails and retreats tomorrow, short term support would be around the 8000 points level. The US market just isn't recovering like those of the BRIC nations, which are going almost straight up now. Not even the ETFs linked to BRIC nation indices are doing what the stock markets in those countries are doing.

For now, the Dow remains in short term bear trend, intermediate term bull trend and Primary Bear Trend.

Friday, June 26, 2009

Dow Continues Pullback...

The Dow ended down for a second week in a row this week, losing 1.19%.

Despite optimistic outlook and economic data this week, investors are selling into this widely anticipated technical pull back scenario, beating the Dow down everytime it takes a peek upwards. On the weekly charts, the Dow followed up on the evening star signal that was produced last week and with rising bearish momentum, the odds definitely favors the way down. Short term support is at about 8000 points.

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

Wednesday, June 24, 2009

Market Down Despite Optimistic Fed

As expected, optimistic comments from the Fed did nothing for the market as investors continue to sell into the pull back scenario. In fact, not even the better than expected durable goods order helped.

The Dow had a good early day run but was quickly beatened back to the reality of the pullback, closing down marginally by 23 points. It is pretty clear now that we are in a technical driven market and that looking out for where this pullback ends up is the most critical thing for this whole reversal scenario. So, how far down is good? As long as it does not make a new low, it is good. This pullback will tell us if the rally we had is a bullish reversal or just a Bear market rally. Again, I doubt if tomorrow's GDP number will help with continuing this intermediate bull trend due to reasons I cited yesterday (see stock market calendar).

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

Tuesday, June 23, 2009

Sideways Day Ahead of Fed...

The day before every FOMC announcement is usually a sideways day. The Dow made a sideways day down marginally by 16 points today. This is also a common occurrence following every large single day moves like the big breakdown we got yesterday.

The short term odds remain bearish as investors may be hesitant to react to anything good from the Fed tomorrow due to this technical retreat and may be more than willing to sell down this retreat even further. That's what technical analysis is really measuring, sentiments. It measures how investors are behaving despite what was being said on the news. Yes, we call that many differents names in technical analysis; Momentum, Support / Resistance etc etc but all these names mean only one thing, and that is what investors are feeling and doing at those prices. Yes, sentiments!

For now, the Dow remains in Short Term Bear Trend, Intermediate Bull Trend in a Primary Bear Trend.

Monday, June 22, 2009

Pullback Starts At Last...

The widely anticipated technical pullback in the US market begins at last with the Dow following up on last week's drop to downside by 200 points today.

Yes, today's move has nothing to do with news. Economics numbers haven been upwards looking so far with only small pockets of pessimism. This is the widely anticipated pullback that will tell us if this is a bullish reversal we are witnessing or simply the primary bear trend resuming its downwards course.

According to the Dow theory, a bullish reversal is only confirmed if the Dow does not make a new low on this pullback and then rebounds to new highs. Short term support is around the 7700 region. Sad to say, the 200 days moving average won the battle this time and it will be up to the rebound to challenge it again. The Dow had a good run so far and is way overdue a break like this.

Sunday, June 21, 2009


The Dow made its first significant retreat last week, down 2.95%, making a new 3 weeks low.

In fact, the Dow formed a evening star candlestick formation on its weekly chart right around its 50 period moving average. An evening star candlestick formation is a bearish candlestick formation which is particularly strong around resistance levels. An evening star forming around its 50 period moving average during a time of widely anticipated pullback certainly must ring a bell of caution.

This week is also FOMC week and the Feds are definitely going to keep rates unchanged and say a lot of good things about the economy going ahead (see stock market calendar). Since there isn't going to be any surprise, I would expect the week to be largely technicals driven, which may be a little less than bullish with the way the Dow is behaving now. Before you walk away thinking that the pullback is a bad thing, please understand that the quality of the pullback decides if we are now reversing into a bull market or still in a bear market under the Dow Theory. Until it does, this will always be an intermediate bull trend in a primary bear market.

Thursday, June 18, 2009

More Signs of Economic Recovery...

The Dow rebounded slightly off its critical 30days moving average support today by 58 points as more optimistic economic data hit the wire.

Better than expected Philly Fed, leading Indicators and jobless claims (see stock market calendar) supported the Dow from breaking below its critical 30 days moving average today. However, investors are cautious ahead of tomorrow's quadruple witching day as well as the weekend ahead and did not jump in on the data. In fact, trading volume remained mediocre today.

The Dow is now at the crossing point between its 200 days moving average, which has been the resistance level the past week, and its 30 days moving average, which provides support. Looking back, we can see that the crossing of the 30 and 200 days moving average is an important event as it usually signifies the beginning of a new trend. The question now really is, will it do so? I pretty much doubt we will have a satisfactory answer this week as tomorrow is arbitrage day (quadruple witching). Nonetheless, the future never looked this bright going forward and the long term outlook remains optimistic. For now, the Dow remains in short term neutral trend, intermediate term bull trend and long term bear trend.

Tuesday, June 16, 2009

Dow Down On Mixed Economic Data...

The Dow continued down by another 107 points today on better than expected housing data but poorer than expected store sales (see Stock Market Calendar).

In my opinion, today's move it more technical than anything. Investors sold off as confidence in this rally slowly faded away, to be replaced by the fear of the pullback everyone's been expecting. In fact, with quadruple witching coming up on Friday, some profitable investors would also want to take some profit off the table rather than risk the volatility. Certainly there are more ways to protect one's profitable positions in the face of uncertainty like the Protective Put, but not everyone thinks the same way. The Dow is now barely on top of its 30days moving average, which is the most important support for this intermediate bull trend so far. This move down, coinciding with the 200 days moving average, puts the Dow in an extremely disadvantageous position. As I have mentioned before, the 200 days moving average is a strong resistance level and the Dow isn't going to be able to break it without a fight. It seems like its happening right now.

Monday, June 15, 2009

Sell-off Day...

The Dow sold off by 87 points today as the Empire State Index turned in worse than expected (see stock market calendar).

The Empire State Manufacturing Index, or commonly known as the Empire State Index, is a monthly survey of manufacturers in the New York area. Survey covers past conditions as well as future expectations. Now, the Empire State index, like most other index, is volatile and does not go straight up or down. Even though it failed to go higher this time round, it is still higher than the last lower number two months ago, which still indicates a rising trend. This is definitely a positive. On top of that, future expectations are really positive in the report as well.

What the Dow did was a healthy pullback to its 30 days moving average, which has been the support for this intermediate term rally so far. Over the past three months, the Dow has bounced off its 30 days moving average for new monthly highs. Will it do so again? The answer will only be revealed tomorrow. If it follows up to downside tomorrow, breaking the 30 days moving average, the big pullback every analyst have been waiting for would start.

Thursday, June 11, 2009

Trading Interest Returns...

The Dow closed yet another largely sideways day today, up by 31.9 points, as jobless claims continue to decline. Indeed, the jobless claims number is indicating ahead of the unemployment number that the worst in the job market may be over. This, together with the rising long term bond yield indicating future inflation expectation, paints a very healthy recovery picture.

Today was clearly a much more bullish day than the past 7 trading days as the Dow made a new 4 months high intraday. This, together with the fact that trading volume is now rising once again shows that trading interest is once again returning as fears of the big pullback begin to diminish. Traders are also seeing that the 200 days moving average isn't yet causing any problem as the Dow glided past it. The next big hurdle to cross for the Dow is the 9000 points resistance level which it failed multi-times back in December 2008. Options traders also gave their seal of approval with the put call ratio going down by 9 basis points to 0.77, indicating more call options trading than put options trading.

The Dow remains in short term neutral trend, intermediate bull trend and primary bear trend.

Monday, June 08, 2009

Bulls Win The Day...

What was looking like a big down day today turned out much better than expected as the bulls regained lost ground by the end of the day. Bond yields continue to rise across the board in what looks like a strategic reallocation into equities over the past few days. Volume continues to move lower as more and more investors sit on the sidelines expecting a pullback.

This intermediate bull trend that the Dow is in is an extremely gradual one, which is what makes this 5 sideways days look very normal. In fact, the Dow could continue to go sideways until the 30days moving average catch up again. Such gradual advance is extremely healthy and may be the future behavior of the market as investors become more educated and risk adverse after this crisis. However, this rally is not going to go much further without a significant pullback. This is what I firmly believe in even though there isn't any signs to prove it yet. Declining volume is bad but declining volume without signs of retreat also shows that there are still significant bullishness in the market and when investors on the sidelines have waited long enough without a pullback, they will inevitably jump right back in again.

Sunday, June 07, 2009

There Goes One Good Week...

The Dow ended the week strongly last week up by 3.09% as optimistic economic data whole week long was priced in as early as Monday. Indeed, other than unemployment rate, which is expected to be higher anyways, every number pointed towards economic recovery. That could also be why the bond traders jumped in last Friday, raising bond yields across the board (see bond yield curve).

The Dow seemed to be holding up against the 200 days moving average pretty well and is currently slightly above it. However, danger's not over until it breaks out even though the intermediate bull trend still looks strong and within a very stable pattern. Volume is what was lacking from the last few weeks as more and more investors expect the market to pullback. Yes, a pullback is necessary to test the integrity of this intermediate bull trend and to ascertain if this is a bullish reversal we are looking at.

The second full week of each month are usually quiet weeks as investors digest and react to all the heavy weight economic data released during the first week. Investors would continue to focus on the jobless claims number and for confirmation of a bottom. Indeed, jobless claims are already painting a very good picture as the 4 week average corrects back down. My personal opinion is that we are witnessing a bullish reversal in the stock market now and that the worst is over.

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Wednesday, June 03, 2009

Another Sideways Day...

The Dow closed down by 65 points in yet another sideways day. Although not strange to see a few sideways days following every big up day, going sideways along the 200 days moving average on such lower volume does say that investors are concerned about it as well.

The factory orders and ADP employment report did not surpise positively today (see Stock Market Calendar) but investors did not panic, which is a good thing. Panic is when there is a significant down day + big volume. Didn't see that today. Goes to show that investors are still locked on the recovery scenario.

As I have mentioned yesterday, the 200 days moving average is a significant resistance level and I would not expect to see a simple breakout. In fact, I would expect the Dow to revisit the 30 days moving average again before mustering enough energy for a breakout. For now, the Dow remains in a short term and intermediate bull trend within a primary bear trend.

Tuesday, June 02, 2009

Just a Sideways Day...

As I've always said, no matter the news, a few days of sideways days always follow significant up or down days. However, one thing made this sideways day a slightly dangerous one; The 200 days moving average. The Dow is right on its 200 days moving average at last. This is the first time the Dow has visited this line since May 2008! Technically, 200 days moving averages are strong support/resistance levels for intermediate and primary trends. If you look back on December 2007, you will see the 200 days moving average providing significant support before the weight of the crisis come crushing down. That said, yes, the 200 days moving average does nothing to change the big trend changes. Is this one of those? Looking back at history again, we can see that once the Dow crosses the 200 days moving average from below, it rarely looks back. So this might be a defining moment for whether or not this is a real Bullish Reversal as well.

For now, short term bullish momentum remains strong and tomorrow's Factory orders might provide some stimulus past the 200 days moving average if it comes in exceptionally strong. If not, then it will be sideways til this Friday's Jobs Report (see Stock Market Calendar)... which is going to indicate a higher unemployment rate, no doubt, lets see how investors react to that.

Monday, June 01, 2009

Dow Breaks Out!

The Dow broke out decisively above its 8500 resistance level by 221 points today! Indeed, that rebound off the 30 days moving average along with the rising short term bullish momentum I identified yesterday really did the job.

The Dow broke out as the ISM index beat expectations, proving once again that the US economy is indeed on the war path to recovery. Eventhough the ISM index is still below 50, which still suggest a contracting economy, it has recovered for 5 consecutive months, suggesting that the worst for the economy may be over. In fact, new orders recovered to above 50 for the first time in 17 months. At this point in time, I think we have more than enough data to call an end to the economic crisis and the beginning of the recovery. Sure, there are some giant companies which need to suffer the final blow but that does not stop the economy from recovering as a whole.

The Dow is now at the doorway of its 200 days moving average, which is an extremely important level to break, as I have mentioned before. With volume and short term bullish momentum rising, it may not prove to be any problem at all. The Dow is now once again in short term bull trend, intermediate bull trend within a primary bear trend. Yes, we still need a pullback to verify if it is a bullish reversal in accordance with the Dow Theory.