Danger: 10,000 points Resistance Zone!

The Dow closed down by 81 points today, retreating over 160 points from today's high as the 10,000 points resistance zone starts exerting its influence.

Yes, today's move is totally technical as there is nothing in the Fed's message to blame the Fed for today's ditch. In fact, the Dow rallied briefly and came within 100 points from the 10,000 points level before a sudden wave of profit taking took over. It does seem like investors are indeed fearful of getting caught in the expected 10,000 points consolidation and has decided to take profit slightly earlier. Indeed, the 10,000 points level can be deemed the dividing point between a weak Dow and a strong Dow. As I have said 2 days ago, with the Dow building up short term bearish momentum and at short term overbought condition, it is not strange to see it test the 9600 level before moving on any further. One thing we learnt today is how powerful the 10,000 points resistance zone is going to be. As such, it would not be surprising even for the Dow to take an intermediate correction at about the 10,000 points level. This is definitely not the time to be newly bullish for the short term.

For now, the Dow remains in all out bull trend.

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Dow Sideways as Leading Indicators Disappoint...

The Dow opened deep in the red and closed down by 41 points as Leading Indicators failed to beat consensus.

Fundamentals
Leading indicators is a widely watched economic indicator consisting of ten economic indicators that typically lead economic activities. It provides an indication on the expected economic activity about six months down the road, hence its importance. Indeed, the stock market always looks forward, discounting to present value all future expectations. The mistake too many investors make is to take the stock market as a reflection of current economic activities and then scratch their head why the stock market head in so different a direction to present conditions most of the time. Even though Leading indicators are lower than expected, such volatility is to be expected as it has gained steadily over the past few months, supporting the recovery scenario. Indeed, nothing takes a straight path up or down, even the leading indicators. In fact, the sharp recovery off the intraday low today shows that sensible buyers are still in the market. Investors are also expected to be cautious prior to this Wednesday's FOMC Announcement (see Stock Market Calendar) as they traditionally do. Not surprising to see another sideways day tomorrow.

Technicals
The Dow did yet another sideways day today as it continue to digest away its short term overbought sentiment. As I have always said, a few sideways days following each big up day is to be expected. This is the third sideways day since the Dow staged a breakout on 16 Sep, so it is nothing unusual yet. In fact, with the Dow still slightly in the short term overbought condition, it could very well retest the 9600 level before moving any higher. Yes, there is no doubt the way ahead is upwards.

For now, the Dow remains in all out bull trend.

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Housing Week Ahead...

Last week was a breakout week for the Dow as it did a decisive break from the 9500 resistance zone, gaining a total of 215 points and closing the week at 9820 points. That breakout also helped me take a 53% profit on my CNX position.

This week is housing week with a ton of housing numbers being released all week long (see Stock Market Calendar). Past numbers has pointed towards a recovering housing market after all the toxicity has been sunk through the economic crisis. No doubt the numbers are going to continue pointing towards a recovery in the housing market as it is clearly in the recovery phase now. It is because of its predictability that I doubt it is going to stop the Dow from testing the 9600 level. Such a testing is extremely important in establishing that area as a support region from the resistance region it used to be. Especially in this weak bull market, frequent testing of immediate short term resistance levels is to be expected.

For now, the Dow remains in all out bull trend.

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Up Up and AWAY!

The Dow clears itself off the influence of the 9500 resistance zone today like a rocket ship out of Earth's gravity field, closing up 108.30 points.

Fundamentals
Investors were greeted with more indications of economic recovery today as both industrial production and housing index beat expectations (see Stock Market Calendar). In fact, this is the first time industrial production is up 2 months in a row since Oct 2007 when the economic crisis begun, indicating that the recession for manufacturing is over. Housing index also continued to rise and beat expectations suggesting the recovery in the housing market is also underway. Both numbers pleased investors greatly as they continue to push the Dow towards the 10,000 points mark. Tomorrow's focus would be the Philly Fed, housing starts and jobless claims.

Technicals
The breakout today is like pulling right out of a gravity field. Today's breakout completely took the Dow out of the influence of the 9500 resistance zone, paving the way for the 10,000 points mark. Short term bullish momentum continue to rise even though the Dow is slightly short term overbought. As far as technicals goes, nothing tells me that the Dow is going to retreat anytime soon. Let the bulls RUN!

For now, the Dow remains in all out bull trend.

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The Dow broke out of the 9500 resistance zone today, closing up 56 points to end at 9720 points, making a new high for the year.

Fundamentals
Early profit takers were quickly beaten back as investors digest the optimistic Empire State Index which continued to point towards US economic recovery (See Stock Market Calendar). The Empire State Index, also known as the Empire State Manufacturing Survey, is a monthly survey of manufacturers in the New York area and measures their current and forward looking sentiments. This is an important forward looking indicator which the Fed watches very closely. In fact, the Empire State Index has been in positive territory for 2 consecutive months so far and rising steadily. There is no doubt from these numbers that the economic recovery is underway. What really bugs traders is how much of these are already priced into the stock market?

Technicals
The Dow's breakout today is an important one and on good rising volume. It also helped my Star Trading System make a new 53% profit on CNX today. It wasn't the strong kind of breakout that we are used to but a continuation of its gradual rise much like the morning sun. In fact, the Dow is once again at a new high for the year, putting it less than 400 points from the 10,000 points mark, which is expected to be a strong resistance level. So far, the bull trend has been slow, gradual and a little weak but rising steadily along a rising 30 days moving average nonetheless. Today's move also took the Dow into short term overbought condition, so don't be surprised to see a retest of the 9500 level soon. Yes, a retest is necessary to establish it as the new support level, giving investors the confidence to push the Dow even higher.

For now, the Dow remains in all out bull trend.

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Quadruple Witching Week

Welcome back from the weekend!

The Dow never did the decisive breakout I thought it will last Friday and is currently still in the danger zone. Yes, the 9500 resistance zone still has significant influence at 9600 points and the Dow can still be beaten down however slim the chances may be. Yes, odds still favor a bullish breakout as the Dow has yet to enter a deep oversold condition and its rising lows still suggest a strong short term bullish sentiment.

It is quadruple witching Friday this coming Friday when the market typically experience the heaviest amount of trading for the quarter. Quadruple witching is not necessarily more volatile but certainly is a heavily traded day.

For now, the Dow remains in all out bull trend.

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One More Step to Breakout

The Dow made its fifth straight up day today, closing up another encouraging 80 points as jobless claims fell more than expected.

Fundamentals
Jobless claims beat expectation of 565K, turning in only 550K today, reassuring investors that the job market isn't going to turn sour all of a sudden again. Indeed, investors have been jittery over the fact that jobless claims has not made a new low for months. Indeed, there is still a long way from the pre-market-crisis level of below 350K. However, there is no doubt that the economy recovery is now underway and that it take time to translate into jobs in the real economy. By then, the stock market would have priced it all in. Indeed, let's never forget that the stock market is a discounting mechanism that discounts to present value the expected future earnings and performance of all the companies in the market. It certainly isn't a day to day reflection of the real economy.

Technicals
On the technical front, the Dow continued its gains with rising bullish momentum and rising volume, which is extremely encouraging. It is now just one step away from making a clean breakout from the 9500 resistance zone and if it does, it will get into the short term overbought region and probably retest the 9500 level, establishing it as a new support level before moving on to the much anticipated 10,000 level. For now, the Dow does look good for a clean breakout tomorrow even though Friday trading tends to be a little sluggish.

For now, the Dow remains in all out bull trend.

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Dow Near Breakout

The Dow continued into its 4th straight up day today, gaining almost 50 points as investors continue to vote optimistically for the future of the US economy.

FUNAMENTALS
Nothing is more revealing to investor sentiments than where the market goes on the second week of each month. The first week of each month is when all the most important economic numbers are released and the second week is usually a quiet week without any big numbers on the line, allowing investors to really sit back and decide which way to vote. What I call the "Voting Week". Yes, investors have certainly been voting for the Bull camp whole week. Even though gains were not spectacular, they are nice, gradual and steady, the way we all like it to be. The continued weakening of the Dollar and the rise of Gold this year so far seems to set the stage for the next round of inflation worries in the near future. Indeed, this is an extremely tricky thing to balance out. We won't want inflation to hit before the job market recovers and we won't want the recovery in the market to end prematurely as well.

TECHNICALS
The Dow is now into that same 9500 resistance zone that it was in late August but this time round, it is a long way from being short term overbought and short term bullish momentum is also rising. When the Dow last visited this level, it was exhausted like an old man pulling a bullock cart. It was short term overbought with short term bearish momentum rising, hence the lack of strength in breaking that level. This time round, the bearish divergence formed last week doesn't seem to be exerting any bearish influence at all and odds now favor the Dow making a decisive topside breakout within these few trading days. If the Dow overcomes the 9500 resistance zone, its next challenge would be the 10,000 points psychological level where we should see heavy profit taking prior to that. So far, the short term bullish trades that our Star Trading System have produced has done quite well and would certainly reach our profit taking points should the Dow breaks out.

For now, the Dow remains in all out bull trend.

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Dow Follows Up...

The Dow followed up on last Friday's rally, gaining 56 points, as investors rushed after watching world stock markets rally on holiday Monday.

Fundamental Analysis
Indeed, the Dow shot right past 9500 points when the market opened today as investors who missed the rally all over the world due to yesterday's holiday, rushed in. However, since this is still a very weak market, there will always be plenty of investors waiting to take profit on any huge surges and almost immediately, the bulls were beaten back mercilessly by a horde of profit takers. By the end of the day, bulls retook lost ground and brought the Dow higher on higher trading volume back near the 9500 points mark. It seems like investors all over the world are jumping to the beat of worldwide economic recovery right now, but is it time to start tightening ahead of the merciless inflation that we can all expect in the near future? In fact, China has gone ahead of the world in terms of tightening credit policies by tightening lending standards and lending limits. Yes, what China did was what we were taught in our economics textbooks, by why aren't the writers of our textbooks doing what they preached?

Technical Analysis
Very good and praise-worthy follow up in the market today. In fact, the gains can be felt even more strongly if you bought stocks (or options on stocks) that are relatively cheap, below the $50 mark. Today's action brought the Dow up against its 9500 points resistance band again; the level it failed to break late last month. This time round, short term bullish momentum is building up and the Dow is far from being overbought, which gives it a much higher chance of a breakout than last month. The Dow was already short term overbought with bullish momentum fading when it last challenged the 9500 level late last month. The Dow does look good to break the 9500 level this time round, following which, we should see the Dow turn back down to test that same level almost immediately in order to establish it as a support level. The only devil here is the big bearish divergence I pointed out yesterday. If the Dow breaks the 9500 level decisively, that divergence will be negated and the Dow would be out of its influence.

For now, the Dow remains in all out bull trend.

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Welcome Back from Labor Day!

Welcome back from the Long Weekend!

The Dow did a fantastic rebound off its 30 days moving average last Friday in a continuation of the bull trend. Indeed, markets around the globe was extremely bullish today as G20 ministers continue to stick to an expansion policy.

Fundamental Analysis
Bond yields also shot up across the board as investors rushed back into equities, giving support to last Friday's move. Yes, unemployment rate continues to rise but investors now knew better than to take that as the first indication of recovery. Indeed, unemployment rate could be one of the last things to come back up in this recovery. Its going to be a quiet week ahead without any heavyweight economic numbers so that investors could focus on what all that has happened last week really means. No doubt the world is on the war path to recovery and the fundamentals look far better than they had been the past few years. Yes, what was missing in the past few years prior to the economic crisis was the housing market. Housing market has been in the slump for years and there can be no healthy economy without a healthy housing market. That is what is so different about this recovery. The market would have a much sounder fundamental with the housing market recovering along with the economy.

Technical Analysis
On the technical front, this rebound from the 30 days moving average is extremely significant as that is the short term support level for the Dow's intermediate trend. However, there are a few critical elements missing from last Friday's rally. First of all, volume was seriously lacking. As expected, pre-long-weekend trading tends to be thin and a rally on such thin volume suggests a rally with very soft bones. On top of that, the Dow is short term negatively divergent with RSI. This shows that the short term inclination is still bearish and this single day "rally" needs to be taken with a big pinch of salt.

For now, the Dow remains in all out bull trend.

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HAPPY LABOR DAY HOLIDAY!

For centuries, labor and capital has been the basis of economics. Without either resource, there can be no economy. However, lets stop and remember on this special day that labor isn't cold hard figures on financial statements but real warm human working hard for the world. On this special day, I would like to say a big THANK YOU to all laborers of the world.

Why Isn't Jobs Coming Back?

The Dow closed up marginally by almost 64 points today as some investors started reallocating out of bonds and back into equities.

Fundamental Analysis
Bond yields rose across the board today as investors reallocate out of the extremely low bond yield and back into equities. Investor sentiments were dampened in early trading as jobless claims failed to beat expectations, raising concerns about tomorrow's Job report (see Stock Market Calendar). Why isn't jobs coming back in a big way now that everyone's talking about economic recovery for so long? Well, the truth is, economic recovery does not mean economic expansion! The recovery process is a long one which goes from economic numbers slowing their decline to economic numbers going stagnant and then to economic numbers heading back up. After the numbers are up and business starts recovering in the real economy will we see jobs come back. The US economy is still in a state of repair, not growth, which is why it is going to take a while more before people starts to feel the pressure ease in their pockets and their lives. However, there is no doubt that the world economy is on the warpath to recovery and the worst is over (until the next crisis). Investors are also cautious going into the labor day long weekend, which is why trading volume has been way below average these two days as well. Consensus is calling for unemployment rate to hit a high of 9.6% tomorrow.

Technical Analysis
On the technical front, this is nothing more than just another sideways day for the Dow. Yes, every big down or up day will be followed with a few sideways day before deciding which direction to breakout. In such technical setups, the inclination would be to breakout in the direction of the big candle, which is downwards in this case. In fact, the Dow looks like it is repeating what it did back in 18 June. Yes, history do repeat itself and that is one of the important corner stones of technical analysis. Short term bearish momentum continue to rise and investors continue to be cautious. Odds continue to favor a downside breakout like it did back in June.

For now, the Dow remains in all out bull trend.

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Bulls Under Pressure on Inflation Worry

The Dow closed down marginally by almost 30 points today as more investors rushed into bonds, depressing bond yields, on future inflation worry.

Fundamental Analysis
Yes, the Dow sold off near the close from the positive territory into the negative following the FOMC minutes (see Stock Market Calendar) which seems to suggest potential higher inflation going into the future than previously expected. Indeed, it would be counter-intuitive to expect a low or no inflation scenario after so much liquidity has been pumped into the financial system. The golden rule remains; More Currency, Less Value. Inflation is a worry during every economic expansion cycle and is a reality that needs to be accepted. Selling off stocks due to inflation fear only cause you to miss the growth created by economic expansion. Today's rush into bonds depressed bond yields across the board, bringing long term bond yields below the 4% mark. This is a point low enough to make equities look attractive once again as yields that low cannot be expected to beat inflation. Lets see if that spurs a return to equities for the rest of the week.

Technical Analysis
On the technical front, nothing really happened today. Like I always said, a few sideways days following every big up or down day is the norm. So a sideways day like today following yesterday's ditch is no surprise at all. The Dow continues to trade along its 30 days moving average with increasing short term bearish momentum. In fact, it is shaping up to look like an intermediate pullback like we saw back in Late June/ Early July. Yes, in a weak bull market such as this one, periodic significant pullbacks are to be expected, which is why I mentioned that investors should keep a mid to long term perspective on the market right now.

For now, the Dow remains in all out bull trend.

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