Stock Market Analysis

Wednesday, July 07, 2010

Dead Cat Bounce Starts...

The Dow gained an impressive 274 points today in an average volume trading day as store sales turned out much better than expected due sales owing to the unexpectedly hot weather.

All major indices and most stocks put on impressive gains today apparently on the back of great retail numbers. Both store sales and redbook turned out positive as the hot weather recently seemed to have spurred a good round of consumerism (see Stock Market Calendar). However, today's huge rally doesn't seem insync with the events that seem to have spurred it. Retail sales typically do not result in such an impressive rally. As such, I found today's rally more technical than fundamental.


What do you call a huge single day rally that came without some seriously strong economic data backing it? Well, I call it a dead cat bounce. Yes, I see today's rally more of an oversold rebound that I mentioned early this week. The retail sales numbers might have given it some reasons but still, it does not justify such a strong rally. In fact, today's rally has all the signs of a dead cat bounce aka bull trap; average volume, big gains, small reasons, occuring after an extended bearish period. Indeed, if you consider the fact that the market has not made a significant up day since this drop begun back in 22 June, today's "rally" really doesn't look like much at all. In fact, index futures are already leading lower as I write this column. I would not be surprised to see these gains get taken back tomorrow. The market is still in a strong and well structured intermediate bear trend and there is nothing to doubt it with yet. I see the 30 days moving average as a strong short term resistance level, as such, as long as it is not broken, I would not be inclined to believe the market is turning around.

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

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


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