Stock Market Analysis

Monday, September 05, 2011

Welcome Back From Labor Day!

Welcome back from the long weekend!

The market couldn't be more predictable last week with the Dow turning around at its 30DMA in a textbook manner, coinciding with the worse than expected jobs report on Friday. The Dow retreated a net total of 44 points last week, ending the dead cat bounce midweek and turning around on Thursday and Friday. Indeed, as I mentioned last week, the market is going to turn around lower no matter how the heavyweight numbers turn out and we indeed saw the market turn sharply lower on Thursday despite a better than expected ISM index. Investors also rushed back to the safety of bonds, depressing bond yields to recent lows. Index futures were already pointing sharply lower through the weekend and it does seem like this is going to be yet another negative week.

On the technical front, the Dow looks set to revisit its 200WMA at about 10,800 and could actually remain range bound between its 50WMA and 200WMA for an extended period of time like it did in 2004. This is the most optimistic scenario at this stage of economy "recovery". If the Dow should break below the 200WMA, we could see the primary bull trend jeopardized. However, I deem that to be a low probability scenario as all economic recoveries go through such a phase of toxic waste cleaning before the real bull trend starts.

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


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