Stock Market Analysis

Tuesday, November 23, 2010

Lower Despite Better GDP

The Dow took a hit today ahead of the Thanksgiving weekend, closing down a huge 142 points.

Fundamentals
Even though GDP revision for Q3 turned in better than expected, investors sold off early on the expectedly lower retails sales and the uncertain Thanksgiving weekend ahead. Market opened down and stay down throughout the session with no clear strength or leadership. Existing home sales also turned in worse than expected with a month on month drop of 2.2%. However, that didn't seem to be the catalyst for today's beat down as futures were already pointing down hard before market open. Much of today's negativity seemed to have been passed over from Asia side as China market ended starkly lower due to the latest North Korean aggression against South Korea, affecting every other market that opened after that. Yes, thats how black monday started too. Tomorrow, we have the heavy weight numbers for the week, Durable Goods Orders, Consumer Sentiment and Jobless claims (see Stock Market Calendar). However, from today's market action, we could see that investors are clearly cautious ahead of the Thanksgiving holiday and may not be too ready to react to positive surprises. On the other hand, with such a huge drawdown today, there would certainly be bargain hunters early tomorrow's session, providing some support.

Technicals
The Dow took an unexpected hit today, correcting all the way back down to the critical daily 50MA support level. However, such sudden "Take Down" back to a critical support line from which the market just rebounded from is a very common phenomena and is usually a bear trap which will see a rebound to new highs right the very next trading day onwards. This, of course, is what we are hoping for ahead of the holiday. However, trading is not based on hopes alone. Today's sell-off had a healthy volume behind it which gives it some credibility. This makes tomorrow extremely critical. The Dow need to stage a significant rebound tomorrow off the 50MA line in order to re-enter the safe zone. Otherwise, we could see that intermediate correction that I was talking about before.

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