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.
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.
posted by Jason Ng at 5:41 PM
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