Stock Market Analysis

Friday, July 31, 2009

Surprisingly Strong Week for the Dow

Why do I say that it has been a surprisingly strong week for the Dow even though it gained only 0.86% for the week despite encouraging economic numbers?

Simply because we did not see any significant profit taking this week even though most of these optimistic numbers have already been priced into the big July rally. All short term technical analysis methods are screaming for a pullback but the Dow has resisted it so far. Does it mean that the pullback will not happen afterall? I do not think so. There is no rallies that move upwards only, especially at such a steep angle. The 9000 points resistance zone still has its effects on the Dow right now as the bulls found it impossible to stage a breakout whole week long. The Dow is also on its weekly 30 period moving average right now, which is a strong long term support and resistance level. With the rise in short term bearish momentum this week, I do expect the Dow to make a re-test of its 50 days moving average at about 8600 points over the next couple of weeks. For now, the Dow remains in all out bull trend.

Wednesday, July 29, 2009

Durable Goods Orders Disappoints

The Dow closed down marginally by 26 points today as Durable Goods Orders disappoint.

Indeed, investors were looking forward to a surprise in a vain hope of extending the already overextended short term rally. They didn't get it. So why didn't the Dow just make a significant down day instead? Thats probably because of 2 reasons. 1, Durable Goods Order is a volatile number. Sudden disappointments like this doesn't surprise many investors let alone the fact that the decline was due mainly to decline in civilian aircraft orders. The airline industry is still very much underwater as we all know and a drop in sales hardly surprise anyone. 2, investors are looking for to a more important Q2 GDP this Friday (see stock market calendar). This number could mean a lot of things if it surprises to upside. However, I do suspect that much of the surprise as already been priced into this short term rally which happened without an extremely strong driver behind it. This means that the short term technical pull back and testing of the 30 days moving average for the Dow might just happen whether or not the GDP numbers are good. One good sign on the technical front is the levelling out of the 200 days moving average which confirms a change in the long term trend. In fact, the short and long term moving averages are now beginning to fall into bullish alignment as well. In a bull market, the short term moving averages should be stacked above the long term averages and vice versa in a bear market. The 20/30/50/200 days moving average are now almost stacked up correctly for the Dow and that confirms the bottoming and a change of mid to long term trend. For now, the Dow remains in all out bull trend.

Monday, July 27, 2009

More Indications of Housing Market Recovery...

The Dow gained a marginal 15 points today as new home sales continue to paint the recovery in the housing sector.

The US housing market, which has been on the downhill for years, have been showing signs of a bottom in the past few months. Indeed, a healthy housing market is essential to the overall health of an economy and a recovery in the housing market at the bottom of this economic crisis certainly makes the economic recovery much more credible. Investors would be looking forward for more confirmations of economic recovery from Wednesday's Durable Goods orders and Thursday's Jobless claims (see stock market calendar). Following which, investors will take a first look at Q2 GDP on Friday.

Even though the housing data was extremely healthy, the stock market didn't react much to it. In fact, most of the day was ruled by the bears, suggesting that the market is indeed short term overbought and ready to pull back a little. Yes, I don't see much more short term strength in the market without at least testing the 200 days moving average again soon. For now, the Dow remains in all out Bull Trend (make no mistake, this is the early stage of a new bull trend).

Sunday, July 26, 2009

Primary Bull Trend Commences...

The Dow confirmed a primary bull trend last week according to the Dow theory as it broke its June highs after a significant retreat, gaining 3.99%.

A primary bull trend is a long term trend which says that the next year or two would be higher than it is right now. It does not mean that the stock market is going to go up and up without looking back. In fact, the Dow is expected to retreat a little this week due to short term overbought sentiments and re-test the 200 days moving average, find support, before going higher. There are serious fundamental concerns still lingering in the world economy and such powerful rebound in the stock market world wide does cast a shadow of concern. Most of the world's GDP are driven by government spending right now and the real question is, how soon will all that translate into jobs for the people?

Thursday, July 23, 2009

Housing Recovery Starts...

The Dow exploded by 188 points today as existing home sales painted the way ahead for a recovery in the housing market.

The housing market has been down for years and 3 straight months of positive gains do give investors a tremendous amount of confidence going into the economic recovery scenario. Jobless claims also turned in far better today. In fact, the 4 weeks average for jobless claims have been dropping since early this year which definitely suggest that the worst in the economy is over (see Stock Market Calendar).

These optimistic reports encouraged such a spurt of buying which pushed the Dow deeper into the short term overbought scenario. The good thing is, the Dow managed to make a new high which completes the continuation of the intermediate bull trend. Indeed, we are at the early stage of a primary bull market now and i am just waiting for the right moment to call it that. The 200 days moving average will be retested and we could see the pullback as early as tomorrow, so don't be surprised. For now, the Dow remains in short term bull trend, intermediate bull trend and primary bear trend.

Wednesday, July 22, 2009

Short Term Pull Back Begins...

The Dow retreated 34 points today as short term bullish momentum fades. Yes, this is the start of the retest of the 200 days moving average that I have been talking about for the past few days and is the retest that will confirm this breakout. In fact, the options Put Call Ratio also surged today, further confirming the short term bearish sentiment in the market now. Make no mistakes, the mid to long term outlook is certainly bullish and any retreat should be taken positively as strategic entry points. For now, the Dow remains in short term bull trend, intermediate term neutral trend and primary bear trend.

Monday, July 20, 2009

Dow Gains on BTE Leading Indicators

Dow gained 104 points today on better than expected Leading Indicators, pointing the way to economic recovery. Leading indicators beat consensus of 0.5 today, turning in 0.7, which continues to point towards slow economi recovery in Q3.

Investors started out with a bit of profit taking when the number was released before catching on with the optimism and started buying again. However, its a relatively thinly traded day today as trading volume continues to be below average with the sense of the Dow being short term overbought.

Yes, the Dow may look like it broke out of the 8750 resistance level but it really hadn't. It is still within the influence of the 8750 resistance zone and such a low volume with short term momentum this overbought does not make it a sound breakout at all. In fact, we could see a pullback as soon as tomorrow onwards or at least a recognisable short term sideways trend. This also means the point where bulls could start to watch for a good deal entry. For now, the Dow remains in short term Bull trend, Intermediate term Neutral trend and primary bear trend.

Sunday, July 19, 2009

Dow Breaks Out!

The Dow staged a 7.33% breakout last week in what looks like a possible continuation of the previous intermediate bull trend.

It is a possibility and not a certainty because the Dow has not retested the 200 days moving average yet to establish it as a support level. Yes, thats how much confirmation you need to call a trend, not just at the very first sight. In fact, this week could see the Dow failing at its short term resistance of 8750, which is where it is now, marked by the high made last month, and retest the 200 days moving average. In fact, if it does that, it would change the intermediate bull trend to an intermediate neutral trend.

Investors would be looking forward to how tomorrow's leading indicator turns out for more confirmation of economic recovery (see Stock Market Calendar). Consensus is for a lower number of 0.5% versus the last number of 1.2%. I pretty much doubt the Dow would stage a breakout of the 8750 level even if the number beats expectations. Media will then quote doubts about the pace of the economic recovery and things like that. In reality, investors always take some profit off the table after significant rallies, don't you?

Wednesday, July 15, 2009

Dow Breaks out on Empire State Index Surprise

The Dow did a decisive breakout of its 200 days moving average today, gaining over 256 points in as the Empire State Index announces a surprisingly positive number.

Consensus for the Empire State Index was for -4.5 but it turned out to be an amazing -0.55! In fact, this is the closest to the zero line the Empire State Index has reached since this whole economic crisis begun. Such a strong number does point investors towards a much better ISM index next month, fuelling the buying today.

In fact, if the Dow holds above its 200 days moving average line, which has been support and resistance for the Dow's primary trends, this could spell the end of this short technical pullback and also confirm the bullish reversal scenario. Short term bullish momentum remains strong as investors look forward to tomorrow's Philley Fed, which is another important leading indicator for the economy (see Stock Market Calendar). For now, the Dow is in a short term bull trend, intermediate bull trend and primary bear trend.

Tuesday, July 14, 2009

Cautiousness Before the Empire State Index...

The Dow closed marginally higher by 27.81 points in a thinly traded sideways day. Apart from the fact that a few sideways days are to be expected following strong single day rallies or drops, investors were obviously cautious ahead of tomorrow's Empire state index (see Stock Market Calendar) as consensus look for a higher number than it has been in 10 months. The big deal about the Empire State Index (and the Philley Fed on Thursday) is the fact that it is a leading indicator of the ISM index and forecasts economic conditions about 6 months ahead. The Empire State Index rebounded off its low in March 2009 and have taken a bumpy recovery ride in tandem with the economic recovery outlook. Due to the economic crisis, the Empire State Index has already been negative for the past 14 months.

On the bright side, short term bullish momentum continue to rise despite the Dow being stopped short once again at its 200 days moving average. A breakout would spell the end of this intermediate technical pullback and confirm the bullish reversal scenario. For now, the Dow remains in short term neutral trend, intermediate bull trend and primary bear trend.

Monday, July 13, 2009

Dow Stages Monday Rally

Bulls beat the early bears today bringing the Dow up a solid 185 points led by Financials. In fact, today's action could spell the end of this technical pullback if it is followed up tomorrow and closes the Dow significantly above its 200 days moving average, which has been a strong resistance level so far.

It does seem like many of the fund sitting on the sidelines so far are getting optimistic and finds this technical pullback a delicious point of entry. This is also why we have seen so much strength in the Dow over the past couple of weeks. In the technical front, this rebound off the Dow's weekly 30MA is extremely important and could probably set it as a support level for the intermediate bull trend to continue, resulting in a bullish reversal. Again, this needs to be followed up on over the next few days.

The next few days are expected to still be volatile due to earnings season and the coming options expiration (see Stock Market Calendar). Investors would also be looking forward to more optimistic data in tomorrow's Business Inventories and the coming Empire State Index as well as Philley Fed. For now, the Dow remains in short term Neutral trend, Intermediate Bull trend and Primary Bear trend.

Sunday, July 12, 2009

Dow At Short Term Support...

The Dow continued to retreat by 1.62% last week as the technical pullback continued. No trends go in one direction all the way. All rallies are interrupted with technical pullbacks such as this one. Technical pullbacks usually happen after a significant intermediate term rally when investors take profit off the table. Really not much reasons beyond that but the media can always find something pessimistic to talk about.

The Dow is now at its short term support level at about 8000 points, marked also by its weekly 30 period moving average. The 7750 - 8000 region is an important region to hold as it was short term resistance for this intermediate rally in April. If this region fails to hold, then serious doubts may be cast on the survivability of this intermediate bull trend. So far, there are signs that bullish momentum is coming back into the market as many of my short term indicators show bullish divergences. This is when I would be cautious about being newly short or newly in put options.

The Empire state index and the Philly Fed would be the focus of the week as investors look forward to more optimistic numbers to continue the recovery scenario (see Stock Market Calendar). This Friday is also expiration day for most equities and index options, which could spell some volatility before and during that day.

Wednesday, July 08, 2009

Another Bearish Sideways Day...

The Dow rose marginally in a sideways day today by 14 points. It is to be considered another bearish sideways day just like 2 days ago because it made yet another lower high and lower low. Such small candle days are usually continuation signals for the previous big move, which was the downwards day yesterday.

So, it does seem like the Dow is going to challenge the 8000 points support this week. Interestingly, there seem to be a weakening of the bear trend today which suggests to me that the 8000 points level could very well hold up. Buyers were in strong today, reversing the early bears even though they failed to produce any significant reversal pattern. The 200 days moving average continues to depress the Dow but at least we are now at a stage where most short term averages are above the 200 days moving average, which has to be a good thing going forward.

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

Tuesday, July 07, 2009

Dow Down on Worse Than Expected Retail Numbers...

The Dow was down 161 points today as retail numbers suggest that consumers are still holding back.

Yes, even though the economic outlook is great, the path to recovery is not going to be a smooth sail. Consumers are still not spending as expected as the store sales dipped from 1.6% last week to 0.1% this week. This gave fuel to the pullback scenario that is already beginning to pick up steam in the market.

The Dow continued into the pullback scenario today making yet another lower high and lower low. Short term support level is about 8000 points with intermediate support at about 7500.

Monday, July 06, 2009

Optimistic ISM Services Lifts Stocks...

The Dow gained 44 points today as investors pushed against the early bears upon release of a better than expected ISM services number (see Stock Market Calendar.

The ISM services or ISM Non-manufacturing Index, is the cousin survey of the more influential ISM Manufacturing Index. ISM stands for Institute for Supply Management is an Arizona-based group representing purchasing managers in the US. It put out two major surveys each month to these purchasing managers to produce the two indices mentioned above. In fact, the ISM index is one of those indices watched by the Fed in deciding on monetary policies. The ISM services is not as influential as the ISM index itself but investors definitely acted on it today as the sentiment in the market turned from bearish to bullist almost upon release of today's higher than expected number of 47. Yes, it seems like investors are totally hungry for more positive data right now in order to convince them of an entry. I believe many of these are those who has missed the rally so far due to skeptism.

On the technical front, trading volume continues to be below average and short term bearish momentum continues to rise as the Dow made yet another lower low and lower high today. The daily 200 days moving average also seem to be depressing the daily highs. For now, nothing suggests that the intermediate rally we had so far is continuing. Odds remains favorable for an intermediate term pullback that will tell us whether this is a reversal in progress or a continuation of the primary bear trend. For now, the Dow remains in short term neutral trend, intermediate term bull trend and primary bear trend.

Thursday, July 02, 2009

9.5% Unemployment Rate

The Dow closed down 223 points ahead of the independance day long weekend as unemployment rate in the US turned in a better than expected 9.5%.

Eventhough the consensus for unemployment rate was 9.6%, a 9.5% number is still higher than last month. That, along with higher than expected loss of payroll jobs of 467,000 and the long weekend ahead was all the reasons investors need to sell out today in order to protect against an uncertain long weekend (see Stock Market Calendar).

On the technical front, the Dow failed right at its 30 days moving average short term resistance level to go back into the pullback scenario. Even though trading volume was low today, the steady short term bearish momentum did make a good follow up on the weekly evening star formed 2 weeks ago. Ever since the weekly evening star formation was formed 2 weeks ago on the Dow, it has fallen a total of about 274 points in a steady march towards its short term support level of 8000 points. Yes, as I have mentioned whole week long, this is an important pullback because how low it goes determines if this is a reversal or a continuation pattern. With the strong economic outlook right now, chances are that this is a reversal but as technicians, we would want to see that evidence show up on the charts rather than to speculate it.

Have a great long weekend!

Wednesday, July 01, 2009

ISM Continues To Recover...

The Dow gained marginally by 57 points as the ISM index missed estimated marginally at 44.8 vs 45.

The ISM index was again better than it was last month and continued to reinforce the economic recovery scenario. However, that did not stop investors from being cautious ahead of tomorrow's unemployment rate number and the long weekend that loomed ahead (see Stock Market Calendar). Trading volume remained low whole week long as nobody wants to be the hero. There are a lot of money on the sidelines, yes, but is worth nothing if nobody takes action. Unemployment rate is expected to hit a high of 9.6% this time round and investors clearly aren't willing to risk anything on that. With so much fear and resistance in the market, it is hard to see how the Dow can stage an upside breakout.

The Dow reversed its short term down trend into a short term neutral trend today as it continued to crawl just beneath its 30 days moving average. That line has been the support/resistance line for this intermediate term rally so far and it's still doing a good job of preventing the Dow from staging a breakout. In fact, this is a rare period of time where the long term and short term moving averages are cramped up almost all at one spot, suggesting that this is a point of decision. This is the point where the Dow must make a decision for the next intermediate leg. Be it up or down. From the market action so far these couple of weeks, downwards seems a lot more logical than upwards. Yes, we do need this intermediate pullback. If it does not go full length this time round, it will the next time round and stronger then. This intermediate pullback is necessary to determine if we are in a real bullish reversal or simply a continuation of the primary bear trend. Yes, history teaches us that bear markets can go on longer than this.