Stock Market Analysis

Wednesday, August 31, 2011

End of Another Dead Cat Bounce...

The Dow continued to move largely sideways today, closing within yesterday's trading range up by 53 points.

There was a lot of optimism in the morning session as much better than expected Chicago PMI and Factory Orders led to a wave of early buying. In fact, the market was already pointing sharply higher on the much better than expected Job-cut report announced pre-market. However, is there no reason to be selling off today? Of course there is. ADP employment report turned in worse than expected before market opened. Even though it was largely overlooked in the first half hour, selling into the strength begun shortly after that, taking the market all the way down from its intraday high into the red. A round of late buying took the market back up from the red, making it a slightly positive day today. It seems like today's market action is all about investors buying into the early data and traders selling into the strength and hedging their positions at this critical junction. Bond yields rose across the board as investors reallocate back into equities but total equities put call ratio actually rose in favor of put options trading as traders start to hedge their positions and speculate to downside. Yes, the next two days are critical as the truly market moving heavyweight data will be released in the form of the ISM Index and Jobs Report. Analysts are expecting both data to turn in worse than last month and of course, any negative surprise would mostly like start a new leg down.

Traders continue to sell into the strength today as the Dow come up against its 30DMA resistance level, forming a topside inverted hammer signal. A topside inverted hammer is a candlestick that has a long wick on top of a small body near the bottom. Such a signal is an extremely bearish signal especially occurring at strong resistance levels and following other strong bearish signals such as yesterday's spinning top. Short term momentum indicators are also showing signs of the bullish momentum fading. Therefore it is most likely that the market is going to back down to revisit its 200WMA no matter how the economic data turn out over the next two days as it seems like much of the optimism has already been priced into the market through the short term rally (which has no real fundamental support) so far. As such, I would see this junction being a good point to start looking for new short opportunities.

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

Tuesday, August 30, 2011

Another Dead Cat Bounce Ending...

The Dow slowed its pace of advance today, closing marginally higher by 20 points as it comes up against the 30DMA resistance level.

Economic data turned in pretty mixed today; Better than expected sales data in the morning was quickly hammered down by much worse than expected consumer and investor confidence data released after market opened. However, some investors still stepped into the better than expected sales data for the rest of the day and took the market back up into the green. However, it is clear that investors are beginning to get cautious around this level again as bond yields fell across the board suggesting that investors are moving back into bonds once again. Indeed, today's buying may be the result of the herd following through on yesterday's move, giving investors the chance to exit the game. This kind of market behavior usually occur on the back of yet another significant sell off. Indeed, with worse than expected heavyweight economic data coming up later this week, it is understandable for investors to start getting more cautious.

The Dow hit its 30DMA intraday today and retreated from it, forming a top side spinning top candlestick signal. Such a signal occurring at strong resistance levels such as the 30DMA usually mean the end of a short term "rally". This ties in exactly with my expectation of the Dow testing the 30DMA and then retreating back down to the 200WMA as there simply isn't any fundamentals acting as fuel for a breakout. If the Dow turn around and make a negative day tomorrow, it would complete an evening star formation, which is an even stronger bearish formation. That is the most likely scenario. However, if the Dow finds strength in tomorrow's Chicago PMI and breaks out (the more unlikely scenario), a testing of the 200DMA would be next.

The Dow remains in a short term neutral trend within an intermediate bear trend and primary bull trend.

Monday, August 29, 2011

Dow Rises As Expected...

The Dow rallied today by a huge 254 points as I have expected yesterday on dangerously low volume.

A wave of optimism swept through global markets Monday as the hurricane situation in the US subsides. US index futures were pointing higher prior to opening also on the better than expected Personal Income and Expenditure. Indeed, anything pointing towards happy consumers always give some boost to the stock market in a consumer driven economy. The general sense of optimism also allowed the few investors involved in the market today to overlook the worsening pending home sales, which is another important aspect of the economy. Indeed, today's rally came on the back of extremely low volume which puts doubt on its validity. However, from the significant increase in bond yields across the board, it seems like institutional investors are coming back into equities from bonds. This means that the herd isn't buying into this and anything the herd doesn't follow into, doesn't quite have legs.

The Dow continues its way up to its 30DMA as I have expected. The lack of volume going into the move also tells me that this "rally" isn't one that has legs and increases the chance that the Dow is simply going to fail at the 30DMA and come back down to retest the 200WMA that I talked about yesterday. So far, the Dow has been textbook and the volatile sideways trend seems to want to expand into a wider volatile sideways trend. One which I speculate could be bounded by the 200WMA and 30WMA just like in 2004.

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

Sunday, August 28, 2011

More Uncertainty Ahead...

First of all, let us thank the Lord for weakening Hurricane Irene as it reached the east coast, preventing the kind of massive damage that was previously anticipated. The Dow made a positive week last week at last after four consecutive down weeks, gaining 466 points on a week on week basis.

In a week where economic data continued to weaken and the threat of a Hurricane Irene right at the doorstep, the Dow staged an impressive rebound out of seemingly no strong reasons. Yes, these are what is known as "Technical Rebounds", which means rebounding on technical reasons rather than fundamental ones. Technical reasons means buying or selling due to the current market support or resistance rather than any real fundamental reasons. Indeed, it is hard to put any fundamental reasons behind last Friday's rally as it came on the back of a worse than expected GDP at 1.0% versus consensus of 1.1% and last quarter's 1.3%.

Clearly last week's rebound was a technical one and an expected one as I mentioned last Sunday. The Dow bounced off its 200WMA as expected of a strong support level. We could continue to see the Dow move higher to retest its 30DMA or even the 200DMA. However, it is unlikely that this is a reversal point. In fact, the market is more and more looking set to repeat the kind of post recovery uncertainty of 2004, bouncing between the 200WMA and 30WMA for an extended period of perhaps a year or more before enough toxic waste is drained from the economy to start a real rally. However, if the Dow breaks below the 200WMA this week, then the market would be in a lot of trouble even though that scenario looks to be of a slightly lower possibility from the way the charts are set up right now. It is still time to be very cautious.

This is the first week of September 2011 which means that we are going to get the heavyweight economic datas once again; ISM Index and Jobs Report. Analysts are expecting the ISM index to retreat below 50, indicating a contracting manufacturing sector, the first time since July 2009 and the first time in this recovery so far. Analysts are also expecting a shrinking in non-farm payroll in the Jobs Report. Indeed, if both reports fails to meet expectations, or even if they do, we could see the Dow revisit the 200WMA as the economy continues to shrink.

Saturday, August 27, 2011

Limiting Maximum Monthly Subscriber for My Stock Picks Service...

Due to overwhelming response, I have decided to limit the maximum monthly signup for my Master's Stock Options Picks Service to only 30 a month. This is to ensure the liquidity of the positions that I recommend and also create an exclusivity to those 30 subscribers. So, be one of the 30 winners today! Check out my Master's Stock Options Pick Service now!

Thursday, August 25, 2011

Dow Retreats on Jobless Claims Disappointment

The Dow retreated 170 points today as jobless claims disappoints, putting pressure on an already scared market.

US market took a hit today as jobless claims turned in worse than expected before market opened. Analysts were expecting jobless claims to turn in lower this week at 405K versus last week's 412K revised number but it turned in at 417K instead, which is not only higher than expected but was also higher than last week. Jobless claims seems to be bouncing around the 450K and 400K level whole year long this year so far, taking the decline in Jobless claims since 2009 to a screeching stop. In fact, over the course of the year, jobless claims seemed to have been on a slight up trend, which is of course a bad sign for an economy struggling to recover from an economic crisis. Analysts are also expecting a lower Real GDP for second quarter preliminary tomorrow, which also added to the cautiousness in the market, leading investors and traders to take some short term profit off the table.

Despite making a strong negative day today, the Dow continued to make an expanding day of a higher high and higher low along with rising short term bullish momentum and strong volume. This suggests that the Dow may still continue its way to its 30MA as I have mentioned before where it will test for strength and perhaps make a new leg down on this intermediate bear trend.

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

Tuesday, August 23, 2011

New Dead Cat Bounce Starts...

The Dow staged a technical rebound today by 322 points as expected despite worsening sales data.

US market opened up to an optimistic start today as global markets continue to climb higher prior to US market opening. The strong opening led to an immediate profit taking from some investors exiting on strength but selling soon dried up and the bulls took over for the rest of the day. Investors' move back into equities today from the low bond yields and high bond prices can be clearly seen from the rising bond yields across the board as investors take bonds profit and back into the low equities prices. Yes, today's rebound is clearly technical in nature as sales figures and new home sales continue to disappoint today. As such, we will not be surprised to see more selling into the strength in the days to come.

The Dow rebounded today on the strong 200WMA support along with rising short term bullish momentum as expected. The Dow also formed a nice morning star formation, which is a 3-day reversal candlestick formation(my Star Trading System is created to spot such strong formations automatically), which also completed a short term double bottom formation on good volume. This shows that the Dow might continue this new dead cat bounce for a few days more, probably testing the 30DMA at about 11,700 points. However, unless something changes in the fundamentals, the market might not have the catalyst to turn this intermediate bear trend around yet. As such, such short term bounces still serve more as exit points than entry points.

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

Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!

Monday, August 22, 2011

Short Term Rebouding Coming Again

The Dow moved sideways today, closing marginally higher by 37 points.

Chicago Fed turned in better than expected today before market opened even though it was still a negative number. This, along with the generally more optimistic global sentiment before market opened, took the market higher right from the opening. However, investors seeking to sell on any sign of strength in this weak and uncertain market stepped in right away and took the market all the way downwards right from the higher opening, closing it almost at breakeven for the day. Indeed, investors have not forgotten the generally worsening economic numbers so far and are obviously still seeking to exit the market on any strength strategically.

With the Dow's 200WMA acting as support right now, there are obviously some significant strength in this area from the trading action today. In fact, short term bullish momentum is now rising on our short term indicators which could lead the Dow into another short term sideways trend if the market follows up to upside tomorrow. Otherwise, a visit to the 10,000 points area would still be in the books.

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

New Bear Trend Coming Up?

Aug 21, 2011
The Dow continued to slump last week amidst worse than expected economic data and global debt issues, retreating 451 points on a week on week basis.

Yes, this bear market isn't just about the credit rating downgrade by Standard & Poor's anymore but also about economic data collapsing back down to about 2009 levels once again. Yes, the US economy is suffering in its path to recovery as financial issues globally and locally hit its economy. However, this phenomena is not a new one as almost all recovery phase enters such a period of uncertainty and retreat from overly optimistic outlook coming from the initial phase of the recovery. We saw that same pattern back in 2004 and 2005 coming off the initial strong recovery in 2003. Yes, this also means that such uncertainty could last a year or more until all the toxic waste of the crisis is totally drained from the economy can a new bull trend start.

On the technical front, the Dow is back down to its 200WMA on the weekly charts. This is an area of strong support/resistance and we could see the Dow recover slightly this week before hitting Thursday's Jobless Claims and Friday's GDP. This is also an extremely dangerous area to close below. As we can see from the past, everytime the Dow breaks below its 200WMA, it goes downwards a lot more. As such, if the Dow fails to hold up at this level, then we would see a good down leg for put options trading.

Thursday, August 18, 2011

Dow Dives on Worse Than Expected Data

The Dow continued its bear trend today on an avalanche of 419 points on the back of disappointing economic data.

My prediction of worse than expected leading indicators and jobless claims fuelling a new leg down came true today as both jobless claims and Philley Fed surprised to downside. Jobless Claims rose from last week's revised number of 399K to 408K this week while Philley Fed took a dive going from last month's 3.2 to a -30.7, echoing the grim outlook the Empire State Index did on Monday. Like the Empire State Index, this is also the Philley Fed's worst showing since 2009 and together, they cast a grim shadow on the coming ISM index in September. Even though leading indicators turned in better than expected, it did nothing to stop the combined negative effects of the other leading indicators released so far. Investors continued to run back to bonds like a scared bunny in a hysteric trading session while options traders pushed the total equities put call ratio up to a new year high, echoing the negative sentiment. Tomorrow is August options expiration and would certainly be yet another volatile trading day.

The Dow resumed jumping out of the window type of bear trend today with a huge dive on strong volume. This, along with the surge in total equities put call ratio usually mean a high probability area of reversal. However, with such strong fundamentals backing today's dive along with the futures already pointing sharply lower after markets, I hesitate to make such a call here unless I see it happen for real. For now, short term support level remains at the 11,000 level the Dow is at now. Breaking which, a revisit to the 10,000 points level would be at hand. Moving down to the 10,000 points area would also take the Dow back to 2009 levels which would coincide with the recent economic data being back where they were during 2009.

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

Wednesday, August 17, 2011

Dead Cat Bounce Ends

The Dow moved sideways today, closing marginally higher by only 4 points as the reality of worsening economic data begin to set in.

Early strength in the market gave way quickly to an all out short term profit taking as investors sell out of equities and returned to the safety of bonds, depressing bond yields further across the board. Yes, the reality of worsening economic numbers seem to be setting in right now ahead of tomorrow's round of important leading indicators and jobless claims, which will no doubt start a new leg down if they turn in decidedly worse than expected as well. Options traders continue to have no doubt that this is a bearish market by keeping total equities put call ratio above par. My old question remains... with economic performance back down to where it was in 2009, would the stock market go back down to that level as well?

Even though the Dow closed higher today, there is little doubt that the dead cat bounce has ended and the next leg forward is downwards. In fact, the Nasdaq Composite, which typically moves ahead of the Dow and S&P500, has already made a significant down day, completing the evening star formation I spoke of yesterday. A negative close tomorrow on the Dow will be the confirming signal. Short term support is around the 10,700 area with a revisit to the 10,000 points area if broken. That will also turn the primary trend around to bearish.

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

Tuesday, August 16, 2011

Dead Cat Bounce Ending?

The Dow pulled back 76 points on disappointing sales data today, ending the 3-day rally.

Sales data today turned in worse than expected, leading to a negative opening in the US market. The negative opening was also reinforced by global markets taking a hit on European debt issues before US market opening. Investors also went back into the slightly higher bond yields, depressing bond yields across the board once again while options traders continue to maintain a largely bearish stance with a higher than par total equities put call ratio. The market strengthened in the afternoon, taking it off its lows with the AAA rating affirmation by Fitch. Indeed, Standard & Poor's is only one of many credit rating agencies and is the only one which has downgraded US debt rating so far. Investors are clearly cautious ahead of Thursday's bout of leading indicators and jobless claims report. Economic numbers have been deteriorating the past couple of months and further deterioration in the Thursday numbers would certainly fuel the ongoing bear trend. So far, Monday's Empire State Index has already turned in worse than expected. Indeed, this bear market does have real fundamental issues behind it rather than just a credit downgrade issue.

The Dow pulled back slightly today which is typical after such a powerful 700+ points 3 days move. Short term bullish momentum continue to rise into today's move and along with its slightly higher high and higher low, it seems like this dead cat bounce still have a couple of days to go. However, this is also the area in every dead cat bounce where the market could make a nice evening star formation and continue its way downwards, depending on how the next day close. If tomorrow closes higher, then the dead cat could limp along for a couple of days more. If tomorrow closes lower, than odds would be that the market would continue into its bear trend from here. As such, for the short term, the market remains inclined to downside with limited upside potential.

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

Monday, August 15, 2011

Dead Cat Bounce Continues...

The Dow gained 213 points today despite a far worse than expected Empire State Index.

US market opened up strongly and continued powering upwards all the way to its close along with a wave of optimism that swept over global markets before US market opening. In fact, the far worse than expected Empire State Index released before market opened today didn't seem to move sentiments one bit. Analysts were expecting the Empire State Index to rebound to a +1.0 from last month's -3.76 but it turned out a grim -7.72 instead. It is the Empire State Index's worst showing since November 2010 and marked the third consecutive negative month. The last time the Empire State Index spent so many months consecutively in negative mode was back in 2009 before the end of the 2008 market crash. Indeed, most heavyweight economic data has fallen back to the pre-recovery state and today's Empire State Index, the first of the 3 major leading indicators for the ISM Index, truly cast a shadow on the next ISM Index. Truly fundamentals are not behind today's move, making it more technical than fundamental in nature. Bond yields rose slightly across the board as investors continue to sell out of the higher bond prices and low bond yields. Total equities put call ratio shows that options traders are still very much in the bearish mood, unmoved by today's "rally".

Today's rally is definitely the technical followup to last Friday's move, playing out the dead cat bounce that I mentioned yesterday. Indeed, whenever the market move ahead upwards within an intermediate bear trend on a day of horrendous economic data, it is most likely nothing more than a bull trap or a simple oversold rally. Indeed, with the fading trading volume, it is not hard to see the true nature of this "rally". The Dow would need to test and break its 30MA once again before it can resume its bull trend. For now, odds continue to favor a failure at that level and a continuation of the intermediate bear trend until economic data start to recover.

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

Sunday, August 14, 2011

Dead Cat Bounce Starts?

The Dow rallied 125 points last Friday, ending the week down by a net total of 175 points with a price range of 830 points! Indeed, last week was a volatile week never before seen in the history of the Dow.

Last Friday's "rally" was of a more technical nature than anything fundamental. Nothing in the economic data or news last Friday could have contributed to such a move. Indeed, with bond yields that low and significant strength witnessed around this level due to bargain hunting all week long, it is easy to convince investors into a short term buying spree within a strong intermediate bear trend, aka Dead Cat Bounce. Indeed, last Friday's followup to Thursday's 423 points rally was a critical one in order to get the dead cat bounce going.

On the technical front, short term bullish momentum is also rising out of a grossly oversold market, supporting the coming short term dead cat bounce. Yes, a rally like this out of a grossly oversold area within a strong intermediate bear trend supported by strong bearish fundamentals can mean nothing more than a dead cat bounce unless something significant changes on the fundamental front. Indeed, it will take significant developments on the fundamental front to turn this bear market around for real.

It is leading indicators week this week with Empire State Index on Monday as well as Philley Fed and Leading Indicators on Thursday (see Stock Market Calendar). I would expect that even if these numbers beat expectation, it would only serve to feed the Dead Cat Bounce rather than turn the market around.

Thursday, August 11, 2011

12000 or 10000 Points Ahead?

The Dow rallied 423 points today as it continue its extremely volatile short term sideways movement of 400+ points per day up and down.

Investors jumped on the better than expected Jobless Claims today as it reinforces last Friday's better than expected Jobs Report, creating a picture of recovering jobs market. Yes, a better jobs market is the start of every economic boom. Investors took the opportunity to exit the extremely low bonds yield and back into equities today, creating a surge in bond yields across the board. Does it feel weird that investors still jumped back into bonds over the past week on debt DOWNGRADE, punishing company shares to buy the exact bonds that got downgraded? Well, this shows that investors do not see US debt being downgraded all the way to junk and going into default. Investors still expect to receive their money on these bonds despite the downgrade but the impact such a downgrade has on the economy and equities market is of more immediate concern. That's why weighing the two evils, investors would still run for bonds despite a bond rating downgrade. The recent recovery in the jobs market data could spur a short rally from here onwards until the next bad news on the debt front hit the wire. Indeed, it is still a news driven speculative market and any short term or mid term predictions based on existing news cannot be relied on too heavily as you will never know when the next market moving news will hit the wire.

The past week has been one of the most volatile in the history of the Dow, moving up and down over 400 points every day. However, even though the movements are huge, the trend isn't. The past week has seen the market move largely in a sideways trend with the Dow recovering and losing the same 400+ points every day. However, what's interesting is the rising short term bullish momentum which may usher in the start of a short term dead cat bounce. However, for a dead cat bounce to start, the Dow needs to follow up tomorrow and beat the Monday high in order to complete a short term turn around. If it continue to go down 400+ points tomorrow, then the chances of a dead cat bounce would diminish. If a dead cat bounce happen, resistance level would be at the 200MA at about 12,000. If not, then a visit to the 10,000 points support would still be in the books.

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

Tuesday, August 09, 2011

Dead Cat Bounce?

The Dow rallied 429 points today on the Fed's promise to keep interest rates at the present low level all the way to 2013.

Investors were expecting the Fed to do something more than this and was actually slightly disappointed by the release at 2:15pm, leading to significant selloff. However, the reality of the news soon set in and spurred bargain hunters to step in, lifting the market all the way to its close. Indeed, investors have been worried about the Feds raising rates for a while now and this promise really take that concern away and give the bulls some reason to celebrate. However, that didn't stop some investors from selling on the strength and returning to bonds, depressing bond yields significantly across the board once again. Indeed, times like this makes alot of investors sell on the strength. In fact, total equities put call ratio surged to a high unmatched since Sep 2008, which ushered in the final down leg of the 2008 crisis. Clearly, it is still a scared market with plenty of investors selling into any bit of strength. However, the sense of the market being short term oversold is also overwhelming in the market and it would not be strange to see a couple of days of dead cat bounce from here. Yes, the cat remains dead until something significant changes in the fundamentals of the economy, which remains extremely weak right now. Yes, we are in a news/events driven market now and every new development on the significant issues will change the outlook of the market. Such is the kind of market to be investing for the long term (5 to 10years) on significant retreats, very nimble day traders who can react instantly to breaking news or sensible people who just want to stay on the sidelines for now (At least that's what my Star Trading System is doing right now).

Today's rebound is indeed a good get out time for short term traders who has yet to cut loss. Why? Because even though today's rally was a significant one under normal market condition, its 400+ points fade in comparison with yesterday's 600+ points drop and continues to make a lower high and a lower low. Unless the market follow up with a significant rally beating the high of yesterday's 600+ points candle, today's rally means nothing and the retest of the 10,000 points support level stands. Even if tomorrow ends up positive, it could still be a short term dead cat bounce that does nothing more than create a week or so of excitement before turning back down lower. As such, any strength remains a good time for getting out of longs so that you can wait out the uncertainty. Yes, it is an intermediate bear trend now and inclination will remain bearish until something significant changes in the economy and the charts.

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

Sunday, August 07, 2011

US Debt Downgrade... US Market In Uncharted Territory

The Dow halted its landslide last Friday with a 60 points rally on the much better than expected Jobs Report. Indeed, the jobs market seems to have improved more than analysts have expected and a better jobs market is the prerequisite to any economic recovery.

However, just when the market is ready to price in the better outlook, S&P500 has to cut US debt rating one notch down from AAA to AA+ after market close. Indeed, like some high profile analysts said, there cannot be a worse timing for such a debt rating cut. Just when investors were ready to celebrate on the jobs report and better economic outlook, the debt rating cut hit their heads like a mallet on a mole. In fact, index futures are pointing sharply lower already, and Monday is expected to be another massacre unless the White House come up with something quickly. There is no doubt it would already be a bloodbath in the Asian and European markets before US market open.

This debt rating cut is a historical event which has never happened before and investors usually have only one response to never-before events... RUN. Indeed, the US debt issue is a serious one that could hamper all efforts to rebuild its economy. So far, the Dow has broken every single reliable support and short term bottoming signal so we are in uncharted territory now, both on the technical and fundamental front. Not even during the 2008 bear market did we see such a strong and continuous beat down, not even during the 2008 financial crisis was US debt rating downgraded. As such, there is no reliable historical reference in the US market for such events occurring. A look at the debt downgrades in other countries seem to indicate stock market recovery shortly after such a downgrade but how much does the behavior in those market correlate with the much more complex stock market of the biggest economy of the world? I do not dare draw such linear relationship. In fact, the market is at a juncture where is it too deeply oversold to start going short and too much negativity to start going long. Yes, an extremely tricky market now and no doubt a market for speculators who will be greatly rewarded for their correct "predictions".

Thursday, August 04, 2011

Dow Turns Negative For 2011

The Dow took a crippling blow in the jaw today, closing down by a huge 512 points today even though Jobless Claims was better than expected.

If Tuesday was a slaughter, today's definitely a massacre in the US market. Market opened down and went downwards decisively even though Jobless Claims was slightly better than expected. Analysts were expecting Jobless Claims to turn in a higher 403K but it turned out to be slightly lower at 400K. However, this number is still higher than last week's 398K. This might have put investors on the defensive against tomorrow's Jobs Report. Investors rushed for the safety of bonds today like scared rabbits, depressing bond yields across the board by a leap. Indeed, it felt totally like doomsday in the market today, everything from stocks to gold and oil were affected. In fact, today's drop also took 2011 into an overall loss. Fortunate are those who has "Sold In May and Went Away". Analysts are expecting an increase in nonfarm payroll in tomorrow's jobs report, which will definitely be destructive to the market if disappointed. However, a positive surprise on that front may be the catalyst needed to halt this seemingly unstoppable avalanche.

So far, this avalanche has broken many technical short term bottoming indications such as the "Dragon tail formation" I mentioned to paid subscribers yesterday, the 200MA, the volatile sideways channel and even the VIX indication, turning the intermediate trend to bearish. However, just when I was about to be convinced that this bear trend has legs, today's blow off day caught my attention again. It was a strong volume surge with a strong big down candle. Such huge blow off days occurring at the end of significant down trends usually suggest that the last of the sellers had lept into the market, what is known as a "Last Gasp Selling" and that prices may be attractive enough for people to start buying into. We saw the same thing back in 2008 near the bottom of the big bear trend. However, even if it does rebound from this level, it could still amount to a bull trap unless it test and breakout of the 200MA at about 12000. For now, it is still a volatile events driven market that can move dramatically in either direction depending how global issues work out.

For now, the Dow remains in a short term bear trend within an intermediate term bear trend within a primary bull trend.
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Tuesday, August 02, 2011

8 Straight Down Days... What Does It Mean?

It was a blood bath in the market today as the Dow collasped into its 8th straight down day, closing down by 265 points.

It was a slaughter today in stock markets around the world following Monday's dismal US ISM Index. The recent economic data seems to suggest that the economic engine that was driving the recovery since 2009 seems to have disappeared all at once, leaving the US economy where it was back in 2009 once again. This brought back fears of a "Double Dip" recession which a lot of analysts seem to be talking about lately even though it has never quite happened before. Indeed, all economic recovery phase go through a period of uncertainty and volatility following the initial push. We saw the same thing back in the last economic crisis. However, its short term effects cannot be overlooked as it can last as long as a couple of years, like we saw back in 2004 to 2005. In fact, today's mixed retail sales numbers really didn't help improve sentiments. Investors rushed back into bonds, pushing bond yields to low levels unseen since Oct 2010. But its has yet to reach the kind of low level we saw back in August 2010 which resulted in a market turn around. Yes, when bond yields are too low to satisfy investors' investment objectives, they will return to equities which will always be selling at a discount then. The next hammer to drop would be this Friday's Jobs Report. If it turns out poorly, we could see this market go much lower. Yes, the economy is almost back down to where it was in 2009... would the stock market do so as well?

The Dow made its first 8 straight down days today since Oct 2008 when the bear market at last found a bottom and came to a halt. In fact, 8 consecutive down days are so rare that the last time the Dow did so before Oct 2008 was when the market found a bottom during the last crisis at Sep 2001 and the last time before that was in August 1982, which also found a bottom! Yes, all three times over the past thirty years the Dow made 8 straight down days, the market finds a significant bottom. Could it happen again this time round? Odds are very good due to several reasons; Firstly, the Dow is now at the bottom of its volatile intermediate neutral channel and chances are still good that it will turn around from here. Secondly, the huge dip in the bond yields might encourage investors to return to equities. Thirdly, as I mentioned to paid subscribers yesterday, the VIX dropping in the same direction as the market almost always lead to a turn around within the next few days. Fourthly, the Dow is currently in a deep short term oversold condition so we should see at least a few small up days from tomorrow onwards.

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