Stock Market Analysis

Tuesday, December 07, 2010

Another Sideways Day...

The Dow moved sideways, closing marginally lower by 3 points today as strong profit taking overtook the market in the final hours.

Fundamentals
The US market opened strongly and remained strong for most of the session on the promise of extended tax cuts before succumbing to a wave of profit taking in the final two hours. Yes, there were no economic releases or significant news to account for the sudden wave of profit taking that took place in the final hours. Interestingly, investors sold out of bonds strongly as well, lifting bond yields strongly across the board and that could lead to a return to bonds over the next couple of days on the attractive yield, reducing support for the equities market.

Technicals
Even though today's market action seemed a little pessimistic, it is actually very common to see late profit taking forming inverted hammer candlesticks early in a new leg up as some investors sell out on breakeven after a painful retreat. In fact, we saw numerous such inverted hammer candlesticks on the Sep to Nov leg up as well, so its really nothing to fuss about. The Dow has just entered a short term overbought condition and might have to move sideways for a few days more in order to muster some more energy before resuming the leg up to new highs.

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