Stock Market Analysis

Tuesday, February 23, 2010

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.

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


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