Stock Market Analysis

Wednesday, September 07, 2011

Dow Forms Lowering Pennant Formation...

The Dow staged a surprise rally today, the kind that we have been seeing over the past month of volatile sideways trend, closing higher by 275 points.

Fundamentals
US market got off on a great start today as a wave of optimism swept over global markets prior to US market opening. In fact, index futures were already pointing sharply higher way before the better than expected sales data from the Redbook report. Investors rushed back for equities once again today in their see-saw game as they did all month long so far. Bond yields rose sharply across the board as investors sold off on the high bond prices and returned to stocks. Traders seem to be convinced that today's rally might be fundamentally different as options traders brought the total equities put call ratio down below par in favor of call options trading for the first time since this correction begun.

Technicals
The Dow revisited its 30DMA once again, continuing its recent behavior of sudden big moves. Today's move however, completed a "Lowering Pennant" or "Bear Pennant" formation, which is an intermediate bearish continuation formation. It is a formation which is formed through an extended period of sideways range bound trading following a significant down trend and is usually limited at the top by the 30DMA or 50DMA. Such a formation usually mean that the market could go either way significantly from here. If the Dow turns down again from here and breaks out to the bottom of the pennant, we could see a very significant new leg down. However, if the Dow breaks out to topside, we could have ourselves a reversal. However, being a bearish continuation formation, odds favor a downside continuation.

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!

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