Stock Market Analysis

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.

Fundamentals
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.

Technicals
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.

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