Stock Market Analysis

Tuesday, September 13, 2011

Dow Caught In A "Wedge"

The Dow gained by 44 points today on the back of better than expected Store Sales and continued bargain hunting brought over from yesterday.

Fundamentals
Even though Store Sale turned in better than expected, Redbook's store sales actually turned in lower than last week. As such, sales data today was actually more mixed than positive. However, investors continued to return to equities on the back of bargain hunting left over from yesterday's optimism. Investors could also be pricing in better than expected performance for the coming leading indicators on Thursday. Analysts are expecting both the Empire State Index and Philley Fed to turn in better than last month this time round and certainly such a turn around in economic data is what investors have been waiting for. However, we have seen what such optimism before major economic releases has done lately; leading to nothing more than a strong profit taking.

Technicals

Clearly the Dow is in some kind of a wedge right now. On the one hand, it is being compressed by a lowering 30DMA into a lowering pennant formation. On the other hand, there is significant accumulative strength around the 11,000 level which we have seen since last month. This has caused the formation of a small lowering triangle formation or a "wedge" formation at the end of the lowering pennant formation. Such formations indicate extreme uncertainty and increases the chance of a significant leg up or down depending on the direction of breakout. Yes, this means that this could be the junction where the market decides where it wants to go for the next month or more. Going by the setups so far and the prevailing intermediate trend, odds would no doubt favor a downside breakout but that's not something you want to put everything you have on right now.

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




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