Welcome to February 2010!

Welcome to the first week of February 2010! January ended exactly the way I expected it to... negative. To quote what I said on the first day of January, "January is going to end NASTY". And it did.

The first month of 2010 ended down a total of 478 points or 4.53%. This is almost characteristic behavior of every post recession market. Just take a look at market recovery back in 2003. Doesn't it look exactly the same as what is happening now? Market bottoms out, reverses and then rallies for the rest of the year before running into an intermediate term consolidation. Yes, if history is anything to go by, the next few months is going to be volatile. However, I am optimistic that the market would end higher for the year towards the end of the year. For now, the market is likely to go into another sideways month, trading within last month's range, especially with the monthly 30MA acting as resistance right now.

The Dow is merely 67 points from the 10,000 points short term support level so expect to see some buying there. We will need to monitor the quality of buying around this level in order to determine if the market will go any lower.

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

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Buying Begins Around the 10,000 Points Support

The Dow continues its path towards the 10,000 points support level that I mentioned a few days ago as it ditched 115 points.

Today's ditch comes on the back of the worse than expected durable goods order and many analysts are quick to point fingers at that number. What about the better than expected jobless claims then? Well, the truth is, you can always find plenty of reasons to be optimistic or pessimistic about the market every day and on technical driven short term moves like this one, it is pretty amusing to see analysts point fingers at some of the news and make them the cause of everything.

Make no mistakes, this is an intermediate term pullback that every primary bull trend needs in order to stay healthy and eventually lead to new highs. There is no such thing as a market that goes straight up or down. Even in the big bear market of 2008, the market did plenty of intermediate term pull ups as well. The last intermediate pullback was all the way back in July 2009. The market then experienced several short term pullbacks along the way, which is absolutely normal.

The Dow is now just a stone's throw away from the 10,000 points level which I predict to be a strong support level which could end this intermediate pullback. In fact, the Dow came within 55 points from the 10,000 points level today and then pulled up, indicating the presence of buying around that level. Today's trading pattern further convinced me of the 10,000 points support level and I advise against being newly short at this level.

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

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

Another Sideways Day...

No surprise today as the Dow went into the second sideways day following last Friday's big fall, closing marginally lower by 2 points.

First of all, like I have always said, its normal to see a few sideways days (anything from 3 to 5) following huge single day up or down days. That is exactly what we are getting here. Therefore, no need to crunch the economic numbers or news too much for the "answer".

These sideways days occur as the number of buyers and profit takers par up following huge up or down days. Huge up days encouraged slow investors to buy while quick traders take profit, resulting in a sideways day. Huge down days encouraged shrewd traders to buy into the "discount" and scared investors to sell, again resulting in a sideways day.

In fact, we saw today the exact same trading pattern as Monday's market; Starting out pretty strong as buyers accumulate before profit takers come in in the afternoon to wipe all the gains out. In fact, this is a pretty good sign that there are plenty of investors who are still buying at these levels. The Dow is now in deep short term oversold condition, which supports my 10,000 points support level guesstimation.

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

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

Nearly The Bottom?

Welcome to a new week in the US market! As I have predicted at the very beginning of the year, the US market is going to close nasty for January and my "prophecy" came true within just one week as the Dow retreated 537 points, setting a new low for the year.

Just when sentiments are getting very negative, I picked up some early indications that my 10,000 points support for the Dow may just come true as well. First of all, the VIX surged to within the 30 points area last week. 30 is usually when the market turn around in a primary bull trend (which we are in). We saw the VIX hit around 30 several times over the past half a year and everytime it did, the market turned around. We also saw the total equities put call ratio surge above 1, closing at 1.07 last Friday. Everytime the put call ratio make a sudden dash above 1 within a primary bull trend, the market turns around shortly as well. All these "evidences" seem to suggest a turn around after just a couple of days of drops more, which coincides with my 10,000 points support level scenario.

This is also going to be FOMC announcement week (see Stock Market Calendar). Even though the Fed could not have cooked up anything new this week but to keep rates steady, we would definitely see a reaction from the investment community. Nobody can predict what kind of reaction but you will certainly see a total change in market mood after the 2pm release as usual.

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

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

Intermediate Pullback Begins...

The Dow continues its pullback today, closing down by 213 points, putting 2010 into the red in one fell sweep.

Yes, the US market isn't going to be fortunate enough to digest the grossly overbought sentiment by going sideways anymore. The Dow's follow up to downside today confirmed a short term bear trend and looks strong enough to lead into an intermediate bear trend. This is in spite of a much stronger than expected leading indicators released today. Yes, we have been missing an intermediate pullback like this one since July 2009. Bond yields continue to drop across the board and the VXO made the biggest upwards move in a long while today, confirming the rise in fear in the market (see Bond Yield Curve and VXO chart).

On the technical front, the Dow broke its 30 and 50MA in one fell sweep, which confirms that this isn't going to be just a short term bear trend. Short term support would be at the 10,000 points level. I doubt it break the 10,000 points though.

For now, the Dow turned short term bear trend in an intermediate neutral trend and primary bull trend.

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

Biggest Down Day of 2010

As expected, the Dow sold off today, closing the day down a huge 122 points, making this the biggest single day drop of 2010.

Yes, like I said yesterday, the market is going to sell off early today and it did. Yesterday's "fake out" was definitely baseless and none of our short term indicators agreed with that move. Even though store sales recovered sharply this week, the sense of the market being way overbought is still too strong and encourages no optimism. Options traders also made the biggest move back into put options this year, bringing the total equities put call ratio back to almost par at 0.92 (see Daily Put Call Ratio Chart). Bond traders also went back into their safe havens, depressing bond yields across the board over the past few days.

On the technical front, short term bearish momentum continues to rise but interestingly, the market appears to only be moving largely sideways. In fact, we won't be surprised to see a slightly positive day tomorrow. The 30 and 50MA of all three major indexes have already caught up which makes me wonder if the overbought condition would be digested in a short term sideways trend instead?

For now, the Dow turned short term neutral within an intermediate and primary bull trend.

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

Bullish Start For The Week

An extremely bullish start for the week as the Dow closed up 115 points, erasing all of last Friday's losses.

Speculation on the coming earnings season seem to have started already as giants like MSFT are due to announce their earnings as early as end of the month. From the way the market action looks, investors clearly expect to see a more optimistic earnings season. Today's rally was supported by a declining bond yield and put call ratio, which makes it a truly bullish day.

So, is the pullback over? Not just yet. Our short term momentum indicators continue to point bearish and the market continued to trade with a sense of being overbought. As such, I won't be surprised to see profit taking early in tomorrow's session.

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

Welcome Back From Long Weekend!

Welcome back from the long weekend!

Well, the US market did exactly as we expected last Friday, taking back all the gains of the "suspicious Thursday rally" and more, closing the Dow down a marginal 8 points for the week. From the huge level of participation last week, it is clear that the pullback that is long overdue is currently underway. Strong short term bearish momentum appeared across our short term indicators and bond traders escaped back to the safety of bonds, bringing bond yield down across the board (see Bond Yield Curve). At this point, it is hard to say if this will be a start of a short term or intermediate term pullback. It does have the potential to become an intermediate pullback since that's overdue as well. For now, a test of the 50MA seems certain. How the Dow behave at the 50MA will tell us how deep this pullback will be. If this is the long overdue intermediate pullback, a test of the 10,000 points level seems certain. However, the long term bull trend seems healthy and should lead the market higher after it rebounds. As such, I would actually be looking to buy strategically on the dips using my Star Trading System.

It going to be a relatively quite week ahead with much in the way of heavy weight economic releases. The biggest releases this week would be the leading indicators and Philley Fed on Thursday. I suspect beating consensus won't do very much for the market but not beating consensus could be taken as an excuse to sell off further.

Another Suspicious Bullish Day

The Dow ended the mixed trading day up by 29 points ahead of tomorrow's options expiration Friday.

Why did I say that today is a mixed trading day even though clearly all three major indexes ended in the green? That's because in a true bullish day, we should not only see all 3 indexes up in the green with good strong volume but also bond traders reallocating into equities causing a rise in bond yields and options traders bringing the total equities put call ratio down as call options speculation increases. But no. Apart from the three green indexes, bond yields actually dropped and the put call ratio barely nudged in the direction of call options (see Bond yield curve and put call ratio chart). All in all, there seems to be an uncertain undercurrent to today's "rally" which convinced me to stay committed to the ease off/pullback scenario.

However, one thing about the pullback is that it has been delayed so far long that the respective 30 and 50MA of the major indexes are already catching up with the price and being strong intermediate term supports, they may shorten the depth of the expected pullback to nothing more than a one or two days nudge downwards. If the intermediate bull trend pattern holds, the impending retreat may be a good buy-on-the-dip point. Even though there were no break outs in the traditional sense, the Dow is at a point which is significantly higher than its short term neutral channel and should be re-classified as a short term bull trend now.

For now, the Dow turns an all out bull trend.

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

Pullback Begins...

The pullback that I have been talking about for so many days are definitely happening at last with the Dow retreating 36 points.

Yes, the long awaited ease off is at last happening with the sharp decline in chain store sales (see Stock Market Calendar) as the "excuse" for doing so. Bond yields collaspe across the spectrum as investors flee from equities back into safe harbor and options traders took a definite move to a more equalised trading between put and call options from a deeply call options biased stance.

Indeed, in order for the market to go higher, this ease off is mandatory and long overdue. In fact, the Dow should bounce off its 30 or 50MA line, which has been its intermediate bull trend support so far, before it could go any higher. Same thing goes for the Nasdaq Composite that has ran out of steam at last.

For now, the Dow remains in short term neutral trend within an intermediate and primary bull trend.

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

Mixed Start For The Week...

A mixed start for the week as the Dow closed up 45.8 points and the Nasdaq composite closing down 4.76 points.

The Dow's "sneak out" today despite the leader, Nasdaq composite, losing momentum came as a surprise. It was again a sneak out because there really isn't a significant volume backing today's "rally". With the leader losing momentum, the pullback can't be far away.

Even though the market is all crazy lately, it didn't stop my Star Trading System from making a 52.7% profit on CSX today.

For now, the Dow remains in short term neutral trend within an intermediate and primary bull trend.

Uncertainty Continues...

Another extremely mixed and uncertain day in the market today as the Dow nudged marginally higher by 33 points.

The market has been in some kind of tug of war between the bulls and bears ever since 2010 started. You can clearly see the bulls and bears fighting, taking the market from negative to positive or vice versa intraday and then ending it all mixed. Options traders clearly don't know what to think of all these mess and has kept total equities put call ratio largely stagnant for the past 4 days at about 0.7. Bond yields hardly moved today as well. Is everyone waiting for the unemployment figure tomorrow? Indeed, if unemployment moves higher, it will certainly be a market breaker. From the leading indicators so far, unemployment rate should be stagnant at 10% or slightly lower. However, investors are clearly cautious as they have made a good profit the past year so far.

On the technical front, there are no indications of strength and the market remains in short term overbought condition. As such, I stand by my view on an imminent pullback even if the market stage a single day topside breakout within the next few days. Such a breakout would give profit takers the golden opportunity to sell-off, leading to the pullback I have talked about for days.

Even though the market is uncertain, it didn't stop us from making another 2 new wins using my Star Trading System options swing trading methodology. Will be posting new results tomorrow.

For now, the Dow remains in short term neutral trend within an intermediate and primary bull trend.

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

Great Start For The Year!

The Dow rallied by a grand 155 points on the first trading day of 2010 as the ISM index turned in better than expected with 55.9 vs 54.8.

The US Market gapped open strongly today and maintained its profits throughout the session as the ISM index, which was announced before market opening, turned in better than expected. What in the world is the ISM index?

The ISM Index or Institute for Supply Management Manufacturing Index is a survey conducted monthly amongst purchasing managers in the manufacturing sector. The answers to these surveys are compiled into an index which is not only the very first economic number released every month but also one of the most important leading indicators for GDP. Reading above 50 indicates a growing economy and a reading below 50 indicates a contracting economy. So far, the ISM index has been above 50 for 5 consecutive months and have even gotten to levels higher than before the recession. This is extremely encouraging and definitely supports the economic recovery scenario. However, please expect volatility at these levels and do not be surprised if it drops sporadically like it did last month.

Even though today's 155 points rally looks healthy and on good rising volume, what it merely did was to regain ground lost in the last session. Yes, it is not a breakout, yet. There are still no sure signs that the market can move on any significantly higher without a pullback, so tomorrow would be critical. Short term momentum indicators are still overbought, so if we see a negative day tomorrow, the pullback scenario would very much be intact. If the Dow breaks out on strong volume tomorrow, there will STILL be a pullback but perhaps a milder one.

For now, the Dow remains in short term neutral trend within an intermediate and primary bull trend.

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

2010 Starts! Looking Back on 2009!

How time flies, its another year again! Let us take a look at how 2009 did together!

In the year of 2009, the Dow gained 20.30%, the S&P500 gained 25.2% and the Nasdaq composite gained a whoopping 46.33%. Yes, the Nasdaq composite is leading as usual due to its more volatile nature, so nothing surprising there. Yes, 2009 has been a year of recovery as I predicted it to be at the end of 2008. Non-skeptics like myself have reaped the benefits of investing (not doubting) in this recovery market with intelligent risk control measures in place. 2009 started with the final down leg of the big bear trend of 2008 and then turned around in Q2 and never looked back. So far, all major indices are more than halfway back up to the pre-crisis highs. This goes to show that there are still more believers than skeptics around.

However, I am of the opinion that January 2010 might end nasty due to profit taking. The market is way overdue an intermediate pullback like the one we saw back in June 2009. The market cannot go up non-stop the way it had. Being in such a short term overbought condition, it has to pullback, ease off that pressure before more upside is possible. However, I am of the opinion also that the market is going to make new highs and even match pre-crisis levels by the end of the year. So, how January ends, so shall the year... NOT.

Right now, the Dow continues to struggle in a short term neutral trend with no signs of a breakout. In fact, the Dow might just head back down to the 10,000 points level before it has any energy to go anywhere higher. This is going to be a heavy weight week with the ISM index on Monday and Jobs Report on Friday (see Stock Market Calendar). The ISM index is already at pre-recession levels, so expecting it to go up any higher is asking a little too much. From this point forward, volatility in the ISM index should be tolerated (although I believe it will still be the excuse for any pullbacks).

For now, the Dow remains in short term neutral trend within an intermediate and primary bull trend.

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