Stock Market Analysis

Monday, July 11, 2011

Pullback Continues...

The pullback continues today as the Dow closed a huge 151 points lower after last Friday's big Jobs Report disappointment.

Fundamentals
The huge disappointment in last Friday's Jobs report started this pullback which actually adhere closely to expectations of a technical pullback. Investors rushed out of equities and back into bonds, depressing bond yields across the board strongly. Traders also ran back into the protection and short term downside speculation of put options, causing a surge in the total equities put call ratio. Indeed, last Friday's jobs report was a surprising disappointment especially when almost all of the leading indicators up to that point is suggesting a better than expected report. In fact, analysts were expecting better no-farm payroll and better unemployment rate than the month before. However, both critical measures turned in not only worse than expected but worse than the month before with non-farm payroll turning in only 54K versus consensus of 232K and unemployment rate rising to 9.1% versus consensus of 8.9%. This sudden drop reminded investors and traders never to be too certain about economic data forecast. However, with the way economic data is actually recovering, I would see this pullback as a temporary one and that investors would return once again when the coming numbers such as this Friday's Empire State Index beats expectation.

Technicals
As I said last week, this isn't the kind of market that can go straight up under deep overbought conditions and the disappointment in the Jobs report actually started the pullback that I was expecting. Indeed, this market cannot move on higher without confirmation of this new bull trend by testing its 30MA for support. Lets wait and see how the market perform as the Dow approaches its 30MA. Good entry points would certain present themselves once the integrity of the 30MA is tested. Could it coincide with a better than expected Empire State Index this Friday?

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