Stock Market Analysis

Tuesday, August 23, 2011

New Dead Cat Bounce Starts...

The Dow staged a technical rebound today by 322 points as expected despite worsening sales data.

Fundamentals
US market opened up to an optimistic start today as global markets continue to climb higher prior to US market opening. The strong opening led to an immediate profit taking from some investors exiting on strength but selling soon dried up and the bulls took over for the rest of the day. Investors' move back into equities today from the low bond yields and high bond prices can be clearly seen from the rising bond yields across the board as investors take bonds profit and back into the low equities prices. Yes, today's rebound is clearly technical in nature as sales figures and new home sales continue to disappoint today. As such, we will not be surprised to see more selling into the strength in the days to come.

Technicals
The Dow rebounded today on the strong 200WMA support along with rising short term bullish momentum as expected. The Dow also formed a nice morning star formation, which is a 3-day reversal candlestick formation(my Star Trading System is created to spot such strong formations automatically), which also completed a short term double bottom formation on good volume. This shows that the Dow might continue this new dead cat bounce for a few days more, probably testing the 30DMA at about 11,700 points. However, unless something changes in the fundamentals, the market might not have the catalyst to turn this intermediate bear trend around yet. As such, such short term bounces still serve more as exit points than entry points.

For now, the Dow turns into a short term neutral trend within an intermediate bear trend and primary bull trend.




Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!

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