Stock Market Analysis

Tuesday, September 20, 2011

Fear Ahead of FOMC Announcement

The Dow moved sideways today, closing marginally higher by 7 points as huge intraday gains gave way during the last two hours to short term profit taking ahead of tomorrow's FOMC Announcement.

Fundamentals
Even though global markets were largely positive today, US investors and traders sold off initially on the worse than expected sales data released pre market. However, optimism in the global markets before US market opened caught up quite quickly and took the market to their session highs. However, US investors and traders took the opportunity to take some quickly short term profit and sold off in the afternoon ahead of tomorrow's FOMC announcement. There is a lot of uncertainty surrounding the FOMC announcement tomorrow with the GOP leaders urging against further rate cuts as if they already know a rate cut is in the making. Indeed, a rate cut right now would do very little more than increase the risk of inflation. The economy is suffering from fundamental issues that cannot be directly cured using rate cuts. The rest of the week is certainly going to be turbulent with the FOMC announcement tomorrow and Jobless claims as well as Leading indicators on Thursday, all of which can sway sentiments strongly.

Technicals
The Dow is clearly under significant short term pressure right now as it once again failed to make any head way. However, the Dow still managed to hold on to last Thursday's gain, which is a breakout candle. That, along with the fact that the Dow continue to trade above a now rising 30DMA, puts the odds in favor of a bullish reversal unless it goes back down below the line and take back all of last Thursday's gains. Short term bearish momentum is now rising indicating possible short term weakness coming up. The Dow could retest the 30DMA for strength before the reversal can happen. The Dow survived multiple strong bearish formations to get this far and it certainly won't give up without a fight.

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

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