A New Month... A New Trend?
Another new month arrives with heavy weight economic numbers such as the ISM index and the Jobs report (see Stock Market Calendar) to be released this week.
Fundamentals
The Dow put up a strong fight last Friday, taking back early losses, closing sideways by 1 point. Market opened deep in the red last Friday as the second quarter GDP turned out worse than expected. Consensus was expecting a 2.5% GDP but it turned out at 2.4%. Even though it was disappointing for a start, investors decided that it really isn't that bad and bought into the weakness as the Chicago PMI and Consumer sentiment beat estimates. However, last Friday's market action still looks very dubious on both the fundamental and technical front. On the fundamental front, the bond yield curve (see Bond Yield Curve Chart) dipped significantly suggesting a rush back into bonds from equities (since there were no new releases) which isn't a sign of strength. This means that investors are concerned about this pullback disintegrating into another significant leg down. So what are the possibilities on the technical front?
Technicals
Even though market did a strong showing last Friday, I am concerned with an extremely strong short term bearish divergence formed right now on the RSI and Stochastics. This, along with the fact that the Dow has barely cleared the gravitational field of its daily 200MA and that it is now at a significant 10500 resistance level, makes a real case for concern whether or not the Dow will get knocked down by the daily 200MA once again like it did back in June. We will monitor how the Dow do at its daily 30MA which is short term support. This also mean that the daily 30MA level is no longer automatically a good accumulation area. Volatility is still the theme for the year and all investors should stay cautious and nimble.
For now, the Dow remains in a short term bull trend, intermediate neutral trend within a primary bull trend.
Fundamentals
The Dow put up a strong fight last Friday, taking back early losses, closing sideways by 1 point. Market opened deep in the red last Friday as the second quarter GDP turned out worse than expected. Consensus was expecting a 2.5% GDP but it turned out at 2.4%. Even though it was disappointing for a start, investors decided that it really isn't that bad and bought into the weakness as the Chicago PMI and Consumer sentiment beat estimates. However, last Friday's market action still looks very dubious on both the fundamental and technical front. On the fundamental front, the bond yield curve (see Bond Yield Curve Chart) dipped significantly suggesting a rush back into bonds from equities (since there were no new releases) which isn't a sign of strength. This means that investors are concerned about this pullback disintegrating into another significant leg down. So what are the possibilities on the technical front?
Technicals
Even though market did a strong showing last Friday, I am concerned with an extremely strong short term bearish divergence formed right now on the RSI and Stochastics. This, along with the fact that the Dow has barely cleared the gravitational field of its daily 200MA and that it is now at a significant 10500 resistance level, makes a real case for concern whether or not the Dow will get knocked down by the daily 200MA once again like it did back in June. We will monitor how the Dow do at its daily 30MA which is short term support. This also mean that the daily 30MA level is no longer automatically a good accumulation area. Volatility is still the theme for the year and all investors should stay cautious and nimble.
For now, the Dow remains in 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!
posted by Jason Ng at 9:59 PM
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