Stock Market Analysis

Wednesday, July 20, 2011

Reversal Completed

The Dow made a small negative day today as I have predicted in yesterday's email to paid subscribers, closing downwards marginally by 15 points.

Fundamentals
Market was slightly negative today as Existing home sales turned in worse than expected. However, optimism is clearly very much in the air as the news failed to affect the market very much. In fact, bond yields rose across the board today strongly as investors reallocate back into equities and options traders continued to keep the total equities put call ratio in favor of Call Options trading. The VIX also dropped today even though the market was down. Whenever the VIX drop on a negative day, it is a signal that the market might turn bullish again as soon as the very next day. This has the same leading effect as the VIX rising on a positive day. Perhaps positive surprises in tomorrow's Jobless Claims, Philley Fed and Leading Indicators would fuel the optimism.

Technicals
The Dow pulled back today slightly as I have expected. Indeed, a couple of sideways or slightly negative days following huge single day rallies are to be expected as traders take short term profit off the table. In fact, with the evidences so far, it seems like the market could regain its bullishness as early as tomorrow. Yes, the reversal out of the intermediate correction is now complete so let's look forward to a new leg upwards.

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