Oil Prices Up, World Market Down

The Dow dropped a huge 178 points as higher expected oil price due to the Libyan crisis hit the world.

Fundamentals
Negativity swept over global markets today due to the Libyan crisis, moving along with the sun starting from Asian markets to European markets and then finally the US market. The stronger than expected consumer confidence release today didn't help either as the market opened and remained red throughout the day. The Libyan crisis is expected to affect oil supply from the region and a resulting higher oil price. In fact, USO (ETF for oil price) gained 5.8% today with a total gain of 8.75% since 15 Feb. Yes, higher oil price always hurts stock markets, as such, we shall view today's ditch with a slightly different light from the similar 166 points drop back in 28 Jan. Investors also jumped back into the safety of bonds depressing bond yields across the board strongly. In fact, a little too strongly, suggesting a little bit of overreaction to the news.

Technicals
Even though today's drop is strong and supported by strong fundamental reasons, there is still not enough technical evidence to suggest that this is anything more than a single day bear trap. In fact, the Dow is overdue a strong pullback such as this one in order for it to continue upwards healthily. This was what I have been talking about all week long last week. This is the time to tighten up your stops a little in case it turns out to be more than just a bear trap as the fundamentals could be a real concern.

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

As I said last week, the trend is our friend, so lets run with it. Indeed, the Dow gained yet another 1.5% week on week last week as economic indicators continue to pave the way for recovery.

Last week, retail sales and jobless claims both staged huge come backs. In fact, Jobless Claims turned in the lowest level in 2.5 years last week, paving the way ahead for better unemployment rate next month. This week will see the release of a slew of leading indicators for the ISM index; from Empire State Index on Tuesday to Leading Indicators and Philley Fed on Thursday (see Stock Market Calendar).

The Dow continues to climb in short term overbought condition with no signs of weakening yet. As such, there is no strong reason not to expect a higher week next week. Immediate resistance level at about 12,600 with immediate support at about 12,000. Lets continue to run with the bulls.
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Market Sideways Despite Better Jobless Claims

The Dow continued sideways today, closing marginally lower by 10 points despite better than expected Jobless Claims.

Fundamentals
Jobless claims fell under 400K for the first time since about two and a half years ago, turning in at 383K this week. Economists expect the job market to show real signs of recovery only when jobless claims fall under 400K and that is exactly what we got today at last. This data also supports last Friday's surprisingly lower unemployment rate. Jobs make happy consumers which makes a happy US economy and of course a happy stock market. In fact, investors reallocated back into equities on the news, raising bond yields across the board. The mid to long term prospects for the market continue to look extremely promising.

Technicals
Investors' reallocation back into equities is only sufficient to offset technical traders' profit taking on the deep short term overbought condition the market is in now. This is why the market continued to find strength to merely go sideways in such deep short term overbought condition. The market remains in deep short term overbought condition and a quick breather right about now would certainly give the market legs for more upside to come. However, thats not to say that the market cannot continue to move higher from here without a breather. The US market is used to trading in deep short term overbought conditions for extended periods of time in strong bull trends. As such, lets take a longer perspective on the market and enjoy the recovery bull!

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

The Dow continued its strong bull run on strong retail numbers, closing up by another 71 points.

Fundamentals
Retail numbers turn in strong today, fuelling the bull market. Retail made a sharp recovery this week after last week's lackluster performance due to heavy weather in the east. In a week with no major releases such as this one, retail sales and jobless claims would usually be the driver. Total equities put call ratio continue to trade steadily below par in favor of call options. Investors would be looking forward to a better jobless claims this Thursday following last Friday's encouraging jobs report (see Stock Market Calendar). Certainly optimism rules in the market now but are there any hidden risks? Lets look at the technicals.

Technicals
Even though this week's rally has been strong so far, volume has been somewhat lacking. This along with the fact that the Dow is currently in a deep short term overbought condition and that the market is somewhat overdue a significant breather, I would not be surprised to see the market go sideways or pullback slightly from here. However, there are no indications that the overall bull trend is at risk. Such a breather would actually make for better entry points and help the market go further. For now, short term support level is on the 12000 points level with the daily 50MA acting as secondary support at about 11700.

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

The Dow not only took back all the lost ground of 28 Jan (single day bear trap that freaked some beginners out) last week but also made a new high for this recovery, gaining 2.27% week on week.

US market got a boost last week on much better than expected economic data. Of note are the better than expected ISM Index (60.8 versus 57.5 consensus) and unemployment rate (9% versus 9.5% consensus). These numbers continue to support the economic recovery scenario and of course, higher stock prices. Investors also rushed back into equities from the safety of bonds last Friday, leading to a surge in bond yields across the board. In fact, the Dow is back up to early 2008 level and would certainly be back up to new highs with continued economic recovery in the next year or so. It is going to be a quiet week ahead with no major economic release, as all second week of the months are, and a time for late comers to partcipate in last week's rally.

With a quiet week and high bond yields, we can expect a slower week ahead as some investors get encouraged back into bonds by the high bond yields.

On the technical front, there is currently no strong evidence to suggest that this bull run is going to end in the short term, especially after the single day breather of 28 Jan. As the saying goes, the Trend is Our Friend. Let's run with it.
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ISM Index Makes 7 Year High!

The Dow closed higher by 148 points today as optimism returns to the market on better than expected ISM index.

Fundamentals
ISM index beat expectations today, climbing to a 7 year high, supporting the economic recovery scenario. Investors also reallocated from the safety of bonds back into equities on the news, driving the market higher throughout the day. Options traders also moved back into call options today, inclining the total equities put call ratio towards call options trading.

Technicals
Today's follow up completed negated the effects of last Friday's single day 166 points drop, confirming it as nothing more than just the bear trap I mentioned to paid subscribers yesterday. With the Dow at its 12,000 short term resistance level along with such strong two days move, it would be normal for the market to go into a few sideways days as traders take some short term profit off the table. In fact, the market might just go sideways until Friday's Jobs report release.

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