Market in a "Wedge"

The Dow gained 145 points today in yet another broadbased rally on even lighter volume.

Fundamentals
US market started off positive and never looked back as bargain hunters continued to buy into the possible end of this intermediate correction. Yes, the rally and optimism is unlikely to be fundamentals driven due to the fact that volume is severely lacking. Furthermore, sales data released today were mixed and does not justify such strong reaction. News on the Greek front is nothing deterministic either. As such, I am of the opinion that the market continue to be technical driven today as was yesterday.

Techncials
Like I mentioned to paid subscribers yesterday, this intermediate correction has the potential to end here if the 200MA continues to hold and the Dow gets back up and stay above the declining 30MA. In fact, a better picture of what is going on now can be seen on the S&P500 chart. As you can see in the S&P500 chart below, the market is now in what is known as a "Wedge". A wedge is when prices are stuck in between a rising support and a declining resistance level. In this case, the market is clearly wedged and squeezed between the 200MA and 30MA now. Wedges show that the market must decide at this point to either breakout above the 30MA and reverse into a bull trend or breakout below the 200MA and resume the bear trend. Yes, it indicates a critical reversal point, which in this case, since the 200MA has proven itself to be an extremely strong support since mid-June, odds now tilt slightly in favor of a topside breakout. Yes, this intermediate correction could end here instead of going deeper into the 50WMA. By "ending here", I don't mean a direct V shaped bottom reversal from this point forward. No, intermediate corrections simply don't give up like that. It will most probably go sideways into a short term volatile sideways trend before reversing.

For now, the Dow turns into a short term neutral trend within an intermediate term bear trend within a primary bull trend.
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ISM coming up...

The Dow continued its intermediate correction last week, closing down by 115 points last week on a week on week basis.

The intermediate correction continues as the Dow continues to head for its 200MA short term support level. If the support level failed to hold, then a visit to its weekly 50MA (50MA) at around 11,500 would be next. In fact, the last intermediate correction ended around the 50WMA as well. Economic data so far also favored to downside as major leading indicators so far makes their biggest retreat since the recovery begun. This week, the ISM index will be announced on Friday with consensus expecting yet another lower number as economic growth continues to slow down.

For now, the Dow remains in a short term and intermediate term bear trend within a primary bull trend.
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Intermediate Correction Continues...

The Dow ended its recent bull trap and continued to head downwards, closing down by 59 points.

Fundamentals
Economic data continues to favor to downside today as Jobless Claims turned in worse than expected once again. Analysts were expecting a lower jobless claims for the week but actual data came in not only higher than expected but higher than it is last week. This led to an immediate reaction in the US market today, opening downwards strongly. In fact, the Dow went down as much as over 200 points in the morning before bargain hunting stepped in strongly for the rest of the day. Investors were clearly buying into every weaknesses lately as most speculate the end of this intermediate correction.

Technicals
Indeed, this intermediate correction isn't giving up without a fight and definitely not on a V shaped reversal. The Dow headed back down to last week's low before bargain hunting set in strongly. This shows that there is indeed significant strength around the daily 200MA level and that this intermediate correction could end around that area as I have previously predicted. Huge hammer candlesticks like the one formed today usually leads to one strong down day the next day and then we should see some struggle around the daily 200MA level before the market can decide where it wants to go next.

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

Another Juicy Bull Trap?

The Dow headed towards its daily 30MA as I have predicted, closing upwards by a huge 109 points today.

Fundamentals
Better than expected redbook and existing home sales supported the market today as bargain hunters continued to pour into the market. This caused a small rise in the bond yields across the board as investors reallocated back into equities. However, the magnitude of the bond yield gains isn't big enough to suggest a strong sense of optimism even though the market did rally considerably. In fact, total equities put call ratio was higher today as traders start moving back into put options for protection. FOMC will make its announcement tomorrow which means another volatile day in a market that is still weak and scared.

Technicals
The Dow moved towards its daily 30MA as predicted with good rising volume. The Dow would most probably move sideways or even slightly downwards tomorrow following such a strong day and will then have to decide where it wants to go in the face of the daily 30MA resistance level. If it continues above the 30MA line decisively and remains above it, then this intermediate correction would be over and the market would be ready for new highs. However, odds still favor the Dow failing at the 30MA and then test the 200MA support at about 11,750 before this intermediate correction is ready to be over.

For now, the Dow remains in a short term and intermediate term bear trend within a primary bull trend.
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Another Volatile Week Ahead...

The Dow made marginally positive week last week after 4 straight negative weeks, closing up by 42 points on a week on week basis.

Even though economic data kept on disappointing and the situation in Spain and Greece continue to worry, the US market held its ground on short term support levels and didn't make yet another negative week. Indeed, no bear trends go straight down and such bargain hunting around short term support levels is to be expected.

The Dow is currently finding support around its weekly 30MA (30WMA) as well as its daily 200MA, both are significant support levels. So, is this the end of this intermediate correction?

Well, if this is the intermediate correction that I have been talking about, then we should be looking forward to a testing of the weekly 50MA (50WMA) at about 11,450. If a visit to the 11,450 level is in the books, then we would probably see a significant pull up (bull trap) to the daily 30MA level before going down to that level. The week ahead may again be quite volatile as the FOMC makes its announcement on Wednesday and GDP coming on Friday (see Stock Market Calendar).
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Philley Fed Disappoints...

The Dow took back 64 points after yesterday's drop despite far worse than expected Philley Fed.

Fundamentals
The Philley Fed turned out much worse than consensus as I have expected in yesterday's email to paid subscribers. Much like the Empire State Index, the Philley Fed turned in negative versus a very positive consensus. In fact, the Philley Fed, which measures general manufacturing condition in the Philadelphia Federal Reserve district, turned in its worse number since the recovery begun back in 2009, pointing with almost certainty that the ISM index next month is going to turn out pretty nasty. Investors rushed back to bonds from equities on the release, further depressing the already low bond yields. However, despite all the fear in the market, bargain hunters still managed to end the Dow higher today. The VIX, which has been unsually low throughout this intermediate correction, has started to surge these two days as fear breaks loose. Tomorrow's Quadruple Witching is going to be a volatile day but not one which is expected to make any big moves as Quadruple witching days are usually high volume days with very limited trading range.

Technicals
Not surprising to see some bargain hunting after such a decisive down day yesterday. With the VIX, Total Equities Put Call Ratio and economic data favoring to downside and plenty of room to go before getting back into short term oversold condition, I do see the Dow making a decisive move down to its 200MA soon. No, I do not think this is going to be a "Double Dip". As I explained in my email to paid subscribers yesterday, this correction is everything a normal intermediate correction within a primary bull trend is.

For now, the Dow remains in a short term and intermediate term bear trend within a primary bull trend.
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Delicious Yummy Bull Trap...

As expected, the Dow took back 123 points of lost ground today even though sales data continue to disappoint.

Fundamentals
Sales data continue to disappoint today as Store sales turned in -0.8%, retail sales turned in -0.2% and Redbook turning in 3.2% versus 4.2% last week. However, investors looked past the data as a wave of optimism swept across the global market and into the US market today. Asia closed largely higher by a significant margin coming out of the weekend and that has created a wave of buying across global markets. Investors poured out of bonds and back into equities in a significant way, causing a surge in bond yields across the board. This truly looks to be too much optimism for almost no reason at all and makes today's "rally" look more like a delicious bull trap.

Technicals
As I mentioned over the past few days, this is the time to be careful of bull traps. Just look back at the last intermediate correction of May 2010 and you will see many such delicious traps for the eager bulls. Indeed, strong corrections like this one doesn't give up without a fight and rarely ends with a V shape bottom indicating a decisive overnight change of sentiments. Today's pullup also took the Dow off its short term deep oversold condition and actually paves the way for its short term destination at about 11,750.

For now, the Dow remains in a short term bear trend within an intermediate neutral trend and primary bull trend.
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Volatile Week Ahead...

The Dow sunk 172 points last week as the intermediate correction went underway.

It was another week of pain last week as the US market continued to landslide and investors continued to move back into bonds, depressing bond yields whole week. Yes, this is the intermediate correction I was talking about since last month and so far, it has been strong and committed as economic data continue to support to downside.

The Dow is now right on its weekly 30MA, which is an important intermediate support. Breaking this level would set the Dow into an intermediate neutral trend just like what we saw back in May 2010. In fact, a retest of the weekly 50MA at about 11,470 would be the most realistic target for this intermediate correction. As such, I would be careful of any apparent "strength" in the market until that level is reached.

This is the third week of June. The third weeks of any month are commonly volatile weeks with the release of important leading indicators as well as options expiration on Friday. More than that, the coming Friday is "Quadruple Witching" day, when a bunch of derivatives would expire, leading to more volatility than usual (see Stock Market Calendar). As such, I continue to expect a volatile bearish inclined week ahead even though the market might go sideways or even slightly upwards a bit due to the strong down day last Friday. Beware of bull traps.
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Jobless Claims Disappoints... Again

The Dow gained 75 points today despite once again worse than expected Jobless Claims.

Fundamentals
Jobless claims disappointed once again this week. This week, not only did it not meet analysts' expectation of a lower number than last week, it turned in even higher once again. This along with this month's Jobs report truly cast a shadow on the job market in the US and the coming Jobs report next month as well. Even though Jobless Claims was this disappointing, the market still rallied on bargain hunting without any significant positive headline. Some investors moved back into equities on the bargain from the very low bond yields, resulting in a small rise in bond yields across the board.

Technicals
The Dow did exactly what I said it will in the paid subscribers' emails yesterday. With the Dow entering a deep oversold condition, a rebound is expected before the Dow could go any lower. Yes, a bull trap. Every strong intermediate corrections are marked by a few of these tempting "reversal points" which do nothing but trap the bulls in their position when the bear trend resumes. This is what a bull trap mean. With the market pulling back from its high today by the end of the day, it seems like there are plenty of people willing to sell into this strength especially with fundamentals favoring to downside. Today's action has yet to bring the Dow back from its deep short term oversold condition, as such, some herd could still be buying into this "strength" tomorrow before reality take over and bring the Dow down to where it should... the 200MA.

For now, the Dow remains in a short term bear trend, within an intermediate and primary bull trend.
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Intermediate Correction Underway... Where Is the Fear?

The Dow continued into its intermediate correction today, closing down by 19 points despite better than expected sales data.

Fundamentals
Sales data continue to turn in better than expected for a second straight week this week on Memorial day sales. Even though the data led to an early bargain hunting, reality soon set in as investors sold off on the strength in the afternoon, taking back all the gains and more. Investors who did not "Sell In May and Go Away" were clearly regretting it and looking for exit points right now. As such, we can definitely expect more selling into any strength in the days to come as this correction unfolds.

Technicals
The intermediate correction that I have been talking about for so long is at last underway. I have been talking about this since I observed the volatile uptrend in April. One percularity I observed in the intermediate correction this time round is that it is not supported by a surge in the VIX. The VIX, as a fear gauge, is the index that would normally surge whenever a strong correction occurs in the market. During the last intermediate correction in May 2010, the VIX more than doubled in days but this time round, the VIX doesn't seem to be reacting much to the market but rather stayed at its average level of about 18 to 20. In fact, there was a much stronger reaction on the VIX during the last short term correction in March 2011 than it does now. This goes to show that investors and traders are really not in a "panic mode".... yet. It also shows that investors and traders still have their nerves and could still provide support at strategic levels, perhaps around the daily 200MA level. A look at the total equities put call ratio shows that it has been put options inclined for the past few days which is how it usually behaves in a bearish market. As such, this is an intermediate correction without too much of the fear and investors are clearly waiting for a strategic level to end this correction and resume the intermediate bull trend. Indeed, I have always said that the US market needs this intermediate correction in order to move higher in a healthy manner, which makes it a positive thing rather than a negative one.

For now, the Dow turns a short term bear trend, within an intermediate and primary bull trend.
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Intermediate Correction Starts?

The Dow continued to slide into what is shaping up to be that overdue intermediate pullback I have been talking about for so long.

The Dow retreated 251 points last week, sending the Dow back down to its weekly 30MA (30WMA). The Dow's weekly 30MA has always been its intermediate trend support. Closing below the 30WMA on a week on week basis almost always promise more downside to come. The Dow is currently right on top of the line in the same fashion the short term pullback in March did. However, having two such strong pullbacks within such a short period of time always spell trouble and may lead on to something bigger. Yes, that overdue intermediate pullback I have been talking about.

The Dow retreated almost 1400 points in the last intermediate correction back in May 2010 before it rebounded to new highs. Since then, the market have not seen a correction of that magnitude even though it is still in the recovery phase and economic data tend to soften from time to time. As such, this could be it before the market can move on healthily to new highs.
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1-2-3 Strike To The Jaw...

What a way to kick start a new month. The Dow shed 279 points today, making it the worst day in the market since June 2010.

Fundamentals
US market took a one-two-three strike right to the jaw today as ADP employment first set a negative tone for the market opening by turning in its worst level since 2010. It was then quickly followed up by a much worse than expected ISM index, turning in its worst level since September 2009 when the recovery began. The final upper cut to the jaw came in the form of Moody's downgrading of Greek debt along with a negative outlook. This was all it needed for investors to go full flight back into the safety of bonds as bond yields dropped across the board significantly. Indeed, investors have been extremely sensitive to developments on the Greek debt issue and are reacting strongly to any such news. Yesterday's Germany offer to help resulted in a strong single day rally and today's downgrade seem to carry an even stronger reaction. The sudden drop in the ISM index was also a big concern. Not even in 2008 did we see a drop of such magnitude. It was as though the economic engine of the US suddenly got choked and ground to a crawl. The only consolation is that the ISM index is still holding above 50, which indicates economic growth and has held above this level since Aug 2009. Investors seem to have overlooked the very positive retail data today. Better retail now usually spells better economic growth in the near future and this could actually be indicative of the end of this period of very volatile economic data. Certainly the only spanner in the clockwork is the Greek issue and we can expect volatility in the market with each news update on the issue.

Technicals
It was indeed a jaw dropping day today with the Dow making a new low for the month, erasing the gains of the past 4 trading days. Still remember I mentioned that the market is overdue a strong intermediate pullback the kind we saw back in May 2010? Today's biggest drop since June 2010 seems to be heralding in such an intermediate pullback. However, it is impossible to tell if it is so from just a single day drop. Therefore, tomorrow will be critical. Investors and traders need to prove that they are capable of overlooking today's news and get back in on the bargain tomorrow in order to save the day. If tomorrow continues to be a soft negative day, then it would be clear that not even traders are bargain hunting and that maybe the intermediate pullback would happen from here on.

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