Stock Market Analysis

Thursday, September 22, 2011

The Dow Back To Square One

The Dow collapsed by a huge 391 points today as Wednesday's failed retest of the 30DMA led to the strong avalanche that I spoke of all week long this week.

Fundamentals
The Fed's failure to please the crowd on Wednesday along with worse than expected Jobless Claims today led to a strong sell-off today. In fact, this strong sense of pessimism has already affected markets all over the world before US market opening due to how the US market reacted to the FOMC Announcement on Wednesday. Investors also looked past a better than expected leading indicators and rushed back strongly to bonds, depressing bond yields across the board to recently unseen lows. Options traders continue to favor put options trading strongly today as they continue speculation to downside. Overall, this is an extremely negative market which could lead to new lows if no groundbreaking development arise from the European debt issue.

Technicals
I mentioned on Tuesday that the Dow could have a chance at a bullish reversal "unless it goes back down below the line and take back all of last Thursday's gains". That's exactly what happened on Wednesday itself. The Dow retested and failed to hold up the 30DMA and took back all of last Thursday's breakout candle gains all at one shot. A failure of such a critical reversal point reflects a failure of confidence which will lead to a lot more lows. In fact, today's strong follow up to downside also led the Dow into a bearish breakout of the recent lowering pennant formation and brought us back to the revisit of the 200WMA scenario the market was in before last Thursday's breakout.

For now, the Dow remains in short term neutral trend, intermediate bear trend within a primary bull trend.

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