Dow Above 30DMA At Last...
The Dow broke out of its short term wedge formation today, closing above its 30DMA significantly for the first time since this correction begun, ending the day upwards by 186 points.
Fundamentals
The market today is unexpectedly strong, driven by optimism in the global market before US market opened. In fact, almost all the economic data today turned in worse than expected so there is no real fundamentals behind today's strong move. As such, it is suspected that the buying may be due to the exercise of some derivatives instruments ahead of tomorrow's Quadruple Witching day where a bunch of derivative instruments are set to expire all at once. Quadruple witching days are generally days of huge volatility, huge trading volume as derivatives are exercised for their underlying stocks but are also generally days of very limited net gain or loss. Quadruple witching days therefore usually end in a small bodied candlestick with long wicks and huge volume like we have seen so many times in the past.
Technicals
Clearly, today's move is technical but a very significant one. The Dow has not closed significantly higher than its 30DMA since this intermediate bear trend started and this move truly breaks its downwards momentum. Today's move marks the first step for the Dow if it wants to break the current lowering penant formation to the upside. It is clear now that the top of the lowering pennant has moved on to the 50DMA and only by clearing that level and then subsequently the 200DMA which is just above the 50DMA now, can the Dow assure itself of a reversal.
For now, the Dow remains in short term neutral trend, intermediate bear trend within a primary bull trend.
Fundamentals
The market today is unexpectedly strong, driven by optimism in the global market before US market opened. In fact, almost all the economic data today turned in worse than expected so there is no real fundamentals behind today's strong move. As such, it is suspected that the buying may be due to the exercise of some derivatives instruments ahead of tomorrow's Quadruple Witching day where a bunch of derivative instruments are set to expire all at once. Quadruple witching days are generally days of huge volatility, huge trading volume as derivatives are exercised for their underlying stocks but are also generally days of very limited net gain or loss. Quadruple witching days therefore usually end in a small bodied candlestick with long wicks and huge volume like we have seen so many times in the past.
Technicals
Clearly, today's move is technical but a very significant one. The Dow has not closed significantly higher than its 30DMA since this intermediate bear trend started and this move truly breaks its downwards momentum. Today's move marks the first step for the Dow if it wants to break the current lowering penant formation to the upside. It is clear now that the top of the lowering pennant has moved on to the 50DMA and only by clearing that level and then subsequently the 200DMA which is just above the 50DMA now, can the Dow assure itself of a reversal.
For now, the Dow remains in short term neutral trend, intermediate bear trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
posted by Jason Ng at 5:12 PM
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