Stock Market Analysis

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.

Fundamentals
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.

Technicals
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.

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