Stock Market Analysis

Monday, July 26, 2010

Dead Cat Comes Alive

The Dow broke its daily 200MA resistance today, ending higher by 100 points as New Home Sales pleases.

Fundamentals
The recent encouraging earnings season as well as today's better new home sales figures convinced investors that the market might have found its place of value at last, ending the previous sense of the market being too much ahead of the real economy. Indeed, bond traders have also been actively reallocating back into equities the past weeks as investors find support from the earnings numbers and the Fed's committment to go all the way to zero if that's what it takes to bring the economy back up. This is definitely a good area for some mid term accumulation.

Technicals
What I though of as a dead cat bounce has transformed in nature into a classic intermediate trend reversal, coming up from below the 30MA line, rebounding off it and going on higher. This was the same pattern we saw back in February 2010. However, do not be surprised to see the market turn back down slightly or go sideways for a couple of days before going higher. The 200MA which is expected to be the short term resistance level was broken like it did not exist with the market still a long way from being overbought, we could see the same leg up that we saw back in February 2010 as well.

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




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

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