Stock Market Analysis

Wednesday, October 28, 2009

Dow Visits 50MA As Expected...

Like a tame baby, the Dow tested its 50MA as I have expected it to, closing down by 119 points to end at 9762 points.

Yes, the market has rarely been this predictable. In fact, its really when greed and fear is at their highest when the market is most predictable. Resistance levels will play out and support levels will be visited. Overbought markets will consolidate and oversold markets will accumulate. Nothing is more predictable than that. Today's market action brought the Dow back into a short term oversold condition once again, supported by its 50MA and with its put call ratio above 1. All these tells me that this is once again a high probability accumulation point for the Dow. In fact, everytime the put call ratio goes above 1 over the past 6 months, buyers would step in shortly after. A put call ratio reading above 1 indicates that more put options are traded than call options. See daily put call ratio from our Option Trader HQ.

What does all this mean? Simply this is not the time to be newly short. The Dow is going to linger around the 50MA for a few days, no doubt, going slightly above or below the line, before making a decision whether to break upwards or downwards. For now, odds certainly favor a upside breakout.

All of today's economic data turned in worse than expected and some high profile analysts are already calling this the end of the 6 months rally and some are even calling a continuation of the long term bear trend, which of course no longer exist under the Dow theory. Well, the tendency to over-react is human nature afterall and prevalent during volatile market conditions. Real traders play it cool and trade by the trend, not the numbers.

For now, the Dow now turns short term bear trend within an intermediate and primary bull trend.

Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!


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