Consumer Sentiment Disappoints

The Dow ditched 100 points today on much much worse than expected consumer sentiments.

Consumer sentiments made an unexpected drop below the growth line, turning in at 46 versus consensus of 55. Even though some volatility is to be expected in this number, such a huge drop does suggest that the US economy isn't completely out of the recession yet. However, both store sales and red book were up today, suggesting that buying momentum is still picking up, so its not all bad yet.

So, is today's drop the start of a new leg down?

Well, I don't think so. Today's drop is definitely a panic sell off on a very weak reason which usually reverses itself the very next day. In fact, futures for all major indices were up significantly aftermarket. Another reliable indicator is a sudden surge in put call ratio by 21 basis points today. Such a sudden rush into put options is another sign of an unsustainable drop. In fact, I mentioned in my analysis on Feb 21 that I "would not be surprising if the Dow retreats and test that level this week". This is exactly what it is doing now. I won't join in the panic until my indicators suggest otherwise over the next few days. This continues to be a market condition for the nimble.

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

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Dow Rebounds

The Dow staged a fantastic rebound off its weekly 30MA as expected last week, gaining 2.54% or 258 points in all.

There were plenty of good and bad news last week and most important of all are that all leading indicators for the ISM index has surprised to upside, opening the possibility of a surprise in the ISM index that will be announced in the first week of March.

This sharp rebound off the 10,000 points level has been an extremely steep one, putting the Dow into a short term overbought condition. In fact, the Dow now needs to re-establish the daily 30MA as a support level now and would not be surprising if the Dow retreats and test that level this week. However, I have no doubt that this is not a dead cat bounce but the early phase of the Dow resuming the previous intermediate bull trend.

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

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Market Breaks Out!

The Dow gained 83 points today as the Philley Fed beat expectations.

What started out as a pretty bearish day in the market due to the much worse than expected jobless claims number, reversed and ended up sharply bullish as the Philley Fed released at 10am beat expectations, turning in 17.6 versus the prior number of 15.2. Like the Empire state index we covered two days ago, the Philley Fed measures manufacturing health in the Philadelphia region and is a good leading indicator for the all important ISM index. With both the Empire State Index and Philley Fed higher than expected, we can look forward to a better than expected ISM index two weeks later.

Today's rally is an extremely critical one as it established the fact that the daily 30MA isn't going to become an intermediate term bear resistance level that might push the market down into a significant down trend. The Dow now stands proudly atop that line and mostly importantly, today's move is being supported by a rise in bond yield across the board signifying the vote of confidence from bond traders as they move back into equities as well as a sharp 12 basis points dip in the total equities put call ratio, signifying the vote of "yes" through call options by options traders (see bond yield curve and put call ratio chart).

This rebound from the 10,000 points region has been a pretty sharp one, so don't be surprised to see a slight one or two days pullback. No markets go up forever at that kind of angle. In fact, I would expect a slight pullback tomorrow due to volatility as it is an options expiration Friday.

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

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Empire State Index Surprises

The Dow gained a huge 169 points today as the Empire State Index beat consensus by a mile.

The Empire State Index turned in at 24.91 today, beating consensus of 18.0, leaping from last month's 15.92. In fact, the Empire State Index has been in pre-recession levels for months now and today's number merely reinforced the economic recovery scenario. So what's the big deal with the Empire State index? The Empire State Index is a survey on the manufacturing sector in New York region and has been a good leading indicator for the more important ISM Index. A good Empire State Index today does point towards better ISM index next month and of course, a good ISM index makes investors very happy.

Today's rebound is an extremely important but cautious one. Even though the rebound was strong and on good volume, there wasn't significant reflection of the same mood from the total equities put call ratio and the bond yield curve (see chart of both indicators). Yes, it seems like more sophisticated traders and investors are not really jumping in on this one probably due to the fact that the Dow is now at its daily 30MA again. If it fails at this level, it will collaspe into a longer term bear market and if it beats this level, the bull trend resumes... so its like a crossroad sophisticated traders don't want to bet on. Yes, odds still favor a topside breakout due to all the indications so far but nobody can ever predict the future in the stock market. I would still be short term bullish based on the indications and stay nimble.

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

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Dow Rebounds...

Happy Chinese New Year to all our chinese readers out there! Here's wishing you a prosperous year of the tiger!

The Dow did an important rebound off the 10,000 points support level last week, up 87 points week on week to close 10,099 points. This rebound is an extremely important one in resuming the intermediate bull trend and keeping the primary bull trend intact. In fact, the Dow also rebounded off its weekly 30MA, which is a strong intermediate support/resistance line. This was the line the Dow rebounded off to new highs last July in a similar intermediate pullback. On the short term basis, there is a strong bullish divergence on the stochastics along with strong reversal signals which no doubt spells the end of the this intermediate pullback. Its time to look for strategic entry points once again.

This Friday is going to be options expiration Friday, so some volatility should be expected to build up along the week. However, since its not quadruple witching Friday, so it shouldn't be too much of a concern.

This is a holiday shortened week with President's Day on Monday, so, enjoy the long weekend those of you in the US! :)

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Reversal Pattern Completes...

The Dow gained 105 points today as jobless claims surprised to downside.

Jobless claims ditched strongly from 480K to 440K, beating consensus of 467K and allowing investors to breathe a sigh of relief. The increasing jobless claims over the past few weeks had in part contributed to the intermediate correction we have just witnessed and this decline in jobless claims also tied in nicely with the 10,000 points support level rebound scenario I have been preaching for the past few weeks.

Yes, the Dow followed up on the 10,000 points rebound today with a significant up candle, forming a rounded bottom, which is yet another strong reversal pattern. Short term MACD has also recovered from bearish inclined to bullish inclined, supporting the reversal that is taking place now. I have no doubt that this is the bottom of this intermediate pullback and that we are not going to see this primary bull trend threatened.

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

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Rebound Begins

The Dow gained 150 points today as chain store sales surprises to upside.

Surprisingly, chain store sales are beginning to pick up only after the Christmas/New Year season as it rebounds up 1.4%. Futures pointed sharply to upside after the number was released this morning, kicking the market off to a running start. There was healthy participation and bond yields rose across the spectrum as bond traders reallocates back into equities. Overall, this is one bullish day with nothing to pick on.

In fact, today's rally also created a bullish divergence on our stochastics indicators and such a divergence + dragon tail formation + 10,000 points support level really gives me no reason to doubt that the market is going to rebound from here to new highs. However, in order for this rebound to be confirmed, the Dow needs to get back above its daily 30MA and that is the point where the more conservative amongst us enters... when will you?

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Reversal Coming Up...

The Dow formed a huge dragon tail formation last Friday and the fact that it occurred right on the 10,000 points support level tells me that the support level would most likely hold out.

A dragon tail formation is a big hammer candlestick signal formed at the end of a significant pullback like the one we got so far. It is a reversal signal that suggests the end of a pullback. In fact, it is an extremely high probability signal especially when formed on significant support levels like this 10,000 points level. In fact, the total equities put call ratio also surged to a high 1.21. The last time the put call ratio hit 1.21, the market rebounded to new highs back in 30 Oct 2009. So, odds definitely favor the upside from now on and I would certainly be looking out for entry points to upside than to downside from now on.

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

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Caught In The Fake-out?

The Dow ditched by 268 points today, retesting the 10,000 points support level.

Yes, without any surprise, the Dow retested the 10,000 points support as we expected it to. As I said 2 days ago, intermediate pullbacks such as this one won't die without a fight and I believe a lot of investors were caught in this "fake-out". Yes, this is once again grim reminder to traders never to jump in on a trend too early and without waiting for confirmation.

Today's ditch came on the back of a much higher than expected jobless claims number which paints a bad picture for the Jobs report tomorrow. It does seem like a lot of the pessimism surrounding tomorrow's job report has already been priced in and I won't be surprised to see a sideways, slightly positive day on Friday no matter how the Jobs report turns out.

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

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Healthy Followup

The Dow staged an impressive follow up today, rallying 111 points as store sales staged a healthy rebound.

Same store sales rebounded today by 0.1% following last week's 2.5% drop. Even though the rebound was a small one and early profit taking did exist when the market opened today, investors encouraged by yesterday's ISM index number and rally followed up today into a 111 points rally on healthy volume. Volume was what was missing from yesterday's rally and it seems like more investors are convinced that this is the 10,000 points support bounce that I have been talking about.

Yes, this is definitely the 10,000 points support level at work here. In fact, we are picking up some short term bullish momentum on our indicators at last. So, is this where we pump everything in? Not just yet. Again, we need confirmation. This because even though the technical indications on this "rebound" is very healthy, there is still no move on the bond yield side. Yes, bond yield curve (see Bond Yield Curve) has remained almost stagnant throughout the two days rally. This means that most institutions are not convinced of this "rebound" yet and has yet to reallocate. Indeed, like all intermediate pullbacks, this one's not going down without a fight. In fact, we could see a retest or even a slight breach of the 10,000 points before an all out rebound like what we saw back in July 2009.

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

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Cautious Rebound

The Dow gained 118 points today on the first day of February 2010 as investors accumulate into the "discount".

The Dow did a decent rebound today with optimism reflected in the sudden ditch in the total equities put call ratio (see put call ratio chart) as ISM index beat consensus by a mile. In fact, ISM index is at levels way exceeding the pre-recession 2007 times now. This gives a lot of support for the economic recovery scenario. So, will this result in a turn around in the market?

Even though the Dow did a fairly decent rebound today, today's trading range is still well within yesterday's trading range, which makes it nothing more than a sideways day. There is a little strength showing up in our short term momentum indicators but nothing that strongly suggest the end of an intermediate pullback. Volume was also sorely lacking in today's rebound, suggesting cautiousness. Which means that I am not grading today's rebound very highly and would continue to monitor for better entries. And yes, it is already too late to be newly bearish.

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