Stock Market Analysis

Sunday, May 15, 2011

Leading Indicators Week

The Dow retreated marginally by 0.34% last week on a week on week basis.

It was a relatively quiet week last week without any market moving news or events, resulting in a somewhat sideways week. Investors were back and forth between equities and bonds in largely technical based trading. The market seems to be entering what is known as a "Volatile Bull Trend". A volatile bull trend is characterized by an uptrend made up of sharp ups and downs forming continuous "Wave" like patterns instead of a steady and smooth uptrend. Such a bull trend signifies uncertainties usually at the economic level and may lead on to more severe intermediate pullbacks in the months to come. We saw the same pattern back in the second half of 2009, leading to the intermediate pullback in Jan 2010.

So far, the recovery in the stock market since 2009 have been strong and somewhat ahead of the real economy. It is also overdue a significant pullback the kind we saw in May 2010. As such, the months ahead might be slightly more volatile but still steady enough for mid term / long term investment. This week is May options expiration week, as such, we expect to see more volatility towards the end of the week with Monday's Empire State Index setting the mood for the week (see Stock Market Calendar). The third week of each month is what I call the "Leading Indicators Week" because it is when the three major ISM index leading indicators; Empire State Index, Philley Fed and Leading Indicators, are released. Analysts are expecting some volatility in these numbers as we go through this short term period of volatile economic data. All in all, expect a fairly volatile week ahead.
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