Stock Market Analysis

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.

Fundamentals
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.

Technicals
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.

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