Stock Market Analysis

Wednesday, July 27, 2011

Exhaustion Sell-off?

The Dow sold off strongly by 198 points today as debt talks failed to make progress and economic data continue to turn in worse than expected.

Fundamentals
US market opened negative and sold off right off the gate as Durable Goods Orders disappointed by a mile. This is compounded by the disappointing Beige Book report showing slowing economic growth. By the muted response on the bond yields curve and the huge surge in total equities put call ratio, it does seems like today's sell off came mainly from traders and not institutional investors. This is the 4th straight down day in the US market and the Dow has lost a total of 421 points so far. Lets see if tomorrow's Jobless Claims can surprise positively and stall this freefall. Analysts are expecting a worse number this week so anything just slightly higher than last week would amount to a positive surprise... shouldn't be a hard thing to do.

Technicals
The Dow revisited its 30MA as I have expected in yesterday's email to paid subscribers. However, what was surprising was that it actually broke and closed below both the 30MA and 50MA. Good thing is that it didn't close low enough to constitute a significant downside breakout of both critical short term support levels. Today's huge fall along with the surge in trading volume could amount to a blow off, so we should see a positive day tomorrow. However, lets not forget that we are currently in an intermediate neutral trend, one which has not proven itself capable of turning back up again, as such, any travel within the 12750 and 12000 remains reasonable for the Dow. This 4 days free fall has broken the previous reversal pattern, leaving the intermediate trend once again in neutral territory. This is looking more and more like the big sideways market of 2004. Perhaps such a year of limbo is a must for all recovering markets following every economic crisis.

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