Stock Market Analysis

Tuesday, August 17, 2010

Oversold Rally?

The Dow staged an oversold rebound today like I said it will in my member's newsletter, closing up by 103 points.

Fundamentals
The reason why I think this is a classic oversold rebound is because today's economic numbers turned in worse than expected once again but the market rallied broadly on good volume over almost no reason at all. In fact, index futures are already pointing downwards right after the close. The really important numbers to look forward to are Thursday's Jobless Claims, Leading Indicators and Philley Fed, all of which are capable of moving the market and all of which is anyone's guess with the current trend of worsening economic numbers.

Technicals
An oversold rebound on good volume and made less credible by the strong pullback by the end of the day. Well, I do see one good thing about this rebound and that it occured after a nice bottom side hammer candlestick from yesterday and that it is made right on the Dow's daily 50MA. This means that tomorrow's market action would be critical to determining the nature of today's rebound. If the market followup to upside, I would have no doubt that the 50MA holds and the market's continuing upwards but if the market fails to follow up and pulls back, then today's candle is simply a bull trap that does nothing but kill those who believes in it. So far, since the other major indexes have already broken their short term supports, I would say that there is more downside possibility than upside. As such, swing traders should be cautious about deciding an entry right now but wait for further confirmation.

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




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

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