Stock Market Analysis

Thursday, July 01, 2010

ISM Index Disappoints...

The Dow continued its way downwards today dropping 41 points as uncertainty builds up in major markets worldwide.

Fundamentals
Adding fuel to the already bearish sentiment in the market was a lousier showing in the Jobless Claims and ISM index today. The ISM index is the first heavy weight economic data released on the first trading day of every month. It measures activities in the manufacturing sector and readings above 50 is interpreted as an expanding economy while readings below 50 is interpreted as a contracting economy. The ISM index has been declining for two straight months, its worst showing since it turned around in January 2009. The recent poor showing in major economic data also rekindled the debate as to whether the stock market has moved too far ahead of the real economy.

The uncertainty in the market was also enhanced by uncertainties surrounding tomorrow's Jobs report as well as a long Independance Day weekend coming up.

Technicals
The Dow has declined for 6 straight sessions so far and if we disregard the insignificant rise of 0.05% on 23 June, the Dow would have gone down straight for 8 sessions. All short term technical indicators are in grossly oversold condition and a significant hammer candlestick signal has been formed. A hammer signal is a candlestick with a small body and a long bottom shadow which is created by trading that ended up in the higher price range for the day from a deep sell-off. All these says that a short term bottom might be found and could lead to a dead cat bounce. Yes, there is no such thing as a triple bottom and with the short term and intermediate term bear trend firmly in place now, there is no reason yet to make a significant bet against the trend.

For now, the Dow turns 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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