Stock Market Analysis

Wednesday, June 15, 2011

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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