Stock Market Analysis

Tuesday, January 25, 2011

Sales Hit By Heavy Weather

The Dow closed marginally lower by 3 points in a largely negative day rescued by last hour buying.

Fundamentals
Investors were discouraged by worsening sales data the very moment market opened. Both Store Sales and Redbook worsened due to heavy weather in the East, leading to the Dow losing as much as 81 points in the afternoon. However, on the bright side, consumer confidence picked up sharply for the month on improvements in the job market and that might have been the catalyst for the final hour bargain hunting which brought the Dow back up to almost breakeven for the day. This is also supported by a surge in call options buying, bringing the total equities put call ratio to up almost par. Tomorrow's FOMC announcement is likely going to see a slow morning session with low volume before the market react to whatever the announcement may be in the afternoon.

Technicals
The Nasdaq composite completed a rebound off its daily 30MA short term support today, which could provide some strength for the market over the next few days. However, the Dow and S&P500 continue to lose short term bullish momentum on our technical indicators which supports the view that the market is currently overextended for the short term. However, the market can do two things to digest such short term overbought condition; 1, to retreat to its short term support level before rebounding or 2, to move sideways until the 30MA catches up. The Nasdaq composite has clearly performed action number 1 while the S&P500 looks like its moving for action number 2. The respective daily 30MA would be critical for continuing this all out bull trend, failing which, the market could go into a significant consolidation like the one back in November 2010.

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