Stock Market Analysis

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.

Fundamentals
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.

Technicals
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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