Stock Market Analysis

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.

Fundamentals
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.

Technicals
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.

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