Stock Market Analysis

Monday, October 31, 2011

Dow Makes Best Month In 20 Years

US Market took a hit today with the Dow closing down by 276 points on short term profit taking.

The Dow made the biggest monthly gain in nearly 20 years in October so far, leading to a sharp profit taking today despite better than expected Chicago PMI. The selling today was actually global as world markets were generally lower before US market open, leading US index futures sharply lower. That kind of selling along with the fact that the US market had an almost historical run this month and uncertainty surrounding the major economic data and FOMC to be released this week, led to an inevitable profit taking today. Bond yields were sharply lower across the board as bond prices rise on the return to bonds and total equities put call ratio surged way above par in favor of put options trading once again as traders hedge their positions in expectation of a pullback following such a strong monthly gain.

Today's sell off was totally technical in nature and could set the stage for the retest of the 30DMA that I have been talking about for a while. Indeed, until we see a strong, successful, retest of the 30DMA, this reversal cannot be deem to be complete. However, taking a look at the monthly chart shows the Dow rebounding nicely and strongly off its 30MMA, which is already a strong mid term reversal. All in all, this means that on the technical front, the market is now mid term bullish inclined with a short term pullback to the 30DMA to be expected.

For now, the Dow remains in short term bull trend, intermediate term neutral trend and primary bull trend

Tuesday, October 25, 2011

Economic Data Disappoints...

The Dow took a hit today as economic data once again turned in disappointing, closing downwards by 207 points.

Just when investors and traders have mustered enough confidence in the trend of recovering economic data, almost all economic data today turned in disappointing, leading to a selloff. Both sales data today turned in worse this week with Consumer Confidence taking an unexpectedly huge hit. Even the increase in Investor Confidence did quite make it above the safety mark leading investors to run back into bonds like scared bunnies. Bond yields dropped across the board today sharply with total equities put call ratio moving above par in favor of put options trading once again. Indeed, investors and traders has turned from being technical sensitive like they did over the past 2 months to being very fundamental sensitive in anticipation of a new bull leg. With such a focus in the market, we can expect every major economic release for the rest of the week to have a big impact on the market. That will lead to a pretty volatile week ahead I am sure.

No surprises today. I predicted this pullback in my email to paid subscribers yesterday as the market needs to vent some of its short term overbought condition and also test the integrity of this "reversal". In fact, I won't be surprised the Dow retests its 30DMA before the real bull run begins and that is IF it survives the retest. As such, this is still the time to be spotting good entries and not making them yet. That is also what my Star Trading System is doing now.

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

Sunday, October 23, 2011

Dow Confirms Breakout!

The Dow broke away from the 11,600 points resistance zone decisively last Friday after being kept below that level for two months. The move was backed up by good volume, good rising of bond yields across the board suggesting that investors did come behind the move and a good drop in total equities put call ratio suggesting that traders agree with the move and are now trading more call options than put options.

It was truly an amazing breakout last Friday but lets be prepared for a little pull back on short term profit taking on Monday and see how investors and traders follow up with GDP coming up on Thursday. All in all, it was a breakthrough week last week and time to start spotting some good longs.

Wednesday, October 19, 2011

Struggle Continues at 11,600 Points Zone

The Dow continues to struggle around the 11,600 points resistance zone, closing down by 72 points as investors continue to be uncertain ahead of tomorrow's major leading indicators.

More uncertainty surrounding the Euro zone issues as well as tomorrow's leading indicators caused traders to take short term profit off the table today after a nice early session. The Empire State Index's disappointment early this week also set a negative tone to the coming leading indicators which might yield the market to the side of the bears should they turn out worse than expected, especially at this critical technical junction. Analysts are expecting slightly better numbers for all leading indicators as well as jobless claims tomorrow which may lead to an easy disappointment. Economic data seems to have recovered from their volatility since last week but how the Empire State Index turned out still threw a spanner into the clockwork.

The Dow continues to struggle at this very critical 11,600 resistance zone. It has failed to break out of this area over the past two months leading to two full months of volatile sideways trend but this time round, it is not going down without a fight. Indeed, this is the first time over the past two months that the Dow has spent so long struggling at this level. This can only mean two things; chances of it holding up and reversing into a new bull leg is very high but if it fails to do so, the coming bear leg might be a strong one. Short term bearish momentum continues to rise and short term bearish formations appeared on my Star Trading System abundantly. As such, I continue to stick to my view of a retest of the 30DMA which will tell us where this market is going.

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

Sunday, October 16, 2011

Dow Breaks Out?

What a week it was last week!

It almost looked like a breakout/reversal week last week with the Dow closing above the 11,600 points for the first time in 11 weeks on a weekly basis! However, I referred to it as "almost looked like" because the Dow is actually still trading within the influence of the 11,600 / 10,600 channel. There were also no strong fundamental developments to support such a reversal. As such, I would still expect to see a retest of the 30DMA soon. The quality of the retest would tell me if this is a reversal or that the Dow is simply still trading within that 1000 points channel.

For now, I would still be very careful in defining this as a breakout. This week is options expiration week and we are also getting some important leading indicators. If leading indicators continue the trend of better than expected economic data, that might be the short term fundamental catalyst needed to convince investors that this is a reversal we are looking at.

Thursday, October 13, 2011

Bulls Running Out Of Steam...

The Dow closed marginally lower by 40 points today as Jobless Claims disappoints.

US market opened in the red today as Jobless Claims turned in slightly worse than expected and remained above the 400K mark adamantly. The 400K mark is beginning to become the hurdle over which investors would consider the employment situation to be improving. As long as it remains above the 400K mark, its hard to give any credit to improving unemployment rate on the sentiments level. Volume also teed off today as investors begin to slow down and see where the market is going. Options traders seem to be a little bit more optimistic today as they bring down total equities put call ratio to 1.05 from 1.30 as put options trading reduces in relation to call options trading. However, as long as total equities put call ratio remain anything above 0.9, I won't deem it to indicate a bullish sentiment reversal.

The Dow formed a hangman candlestick today following yesterday's inverted hammer, which is yet again another strong bearish signal. A hangman candlestick signal is a candlestick that has a small upper body with a long wick on the bottom. Such a candlestick typically indicates presence of bearish forces when they occur at the top of an up trend. As we have seen last month, the Dow usually makes a few bearish candlesticks at around 11,600 points before turning downwards again and this time round, it seems to be doing the exact same thing with short term bearish momentum now rising. On top of that, as long as total equities put call ratio remains above 0.9 consistently, the market won't have the drive for a bullish breakout as the total equities put call ratio is a good indication of what traders in general are thinking about and would remain consistently below 0.9 in a bull trend and consistently higher than 0.9 in a bear trend. If the traders are not bullish, its hard for the market to muster the energy for a breakout unless something significant changes in the fundamentals.

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

Tuesday, October 11, 2011

Uncertainty Continues...

The Dow moved sideways today, closing marginally lower by 16 points on mixed sales data.

US market opened marginally lower today and then bounced up and down around the breakeven line as investors continue to be undecided after an extremely strong holiday Monday rally. Sales data today didn't help maintain the optimism as they turned in largely mixed. Even though investors are still returning to equities from bonds, raising bond yields across the board, traders are less optimistic and pushed total equities put call ratio higher in favor of put options trading. Indeed, it is an extremely undecided market now. On the one hand, we have recovering economic data but on the other hand, investors know that the unresolved debt issue Europe side could hit the market anytime like a time bomb. In fact, investors/traders don't seem to be returning from the holiday yet as trading volume continue to drop today. Yes, volume has been dropping since day one of this "rally" so far and I would be careful in being too optimistic with it.

Dropping volume, declining short term bullish momentum, rising put call ratio; None of these sound right for a "bullish breakout". We should see a retest of the 30DMA soon...

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

Sunday, October 09, 2011

Jobs Report Failed To Bring Back Bulls...

The market continue to be technical drive as the better than expected Jobs report of last Friday once again failed to overcome the powerful 30DMA resistance level.

I was thinking last week that a better than expected Jobs report might be the catalyst for the Dow to stage a topside breakout of its current congestion since it has once again displayed strength at the 200WMA level. Surprisingly, it didn't. The better than expected ISM index didn't turn things around neither did the better than expected Jobs report, both of which are the most heavy weight economic data in the US market.

Indeed, even though investors did return to equities on the news, raising bond yields across the board, traders are not ready for the market to break out to topside yet. Indeed, a topside breakout could mean a reversal of the current intermediate bear trend and I think many traders are not ready for that yet. In fact, total equities put call ratio continue to show a generally bearish sentiment. On the other hand, traders are obviously not ready for a bottomside breakout since there would mean an unprecedented bearish move that might take the market back into a primary bear trend. As such, traders continue to bounce between the 30DMA and the 200WMA, which has now become an extremely narrow channel allowing only for a couple of days move in either direction. With the recovering economic data, I would say odds now favor a topside breakout but the timing of which could be a tricky issue for now. This is also why my Star Trading System have been keeping us out on the sidelines all week last week.

Tuesday, October 04, 2011

Technical Bulls and Bears Battle It Out!

The Dow gained 153 points today as fierce fight for territory at the 200WMA ensues.

Despite somewhat better sales data and Factory Orders, traders continue to take the market lower in technical based trading. Indeed, market action these few days has ignored heavyweight positive surprises in the economic data and persisted in selling off on every bit of strength on technical based trading. On the fundamental front, US economic data seems to be on a recovery phase once again as the recent data, including the ISM Index has turned in better than expected. However, investors still have plenty of reasons to be cautious due to the unresolved European debt issue while traders have plenty of reasons to short into the recent strong bearish signals in the market. So lets take a look at what the technicals are saying about today's market action.

Today is truly a battle between the technical bulls and the technical bears. Technical traders have been predominantly bearish over the past few days on the obvious resistance from the 30DMA. However, as the Dow hit its 200WMA intraday today, some technical bears has begun to turn technical bulls, expecting the 200WMA to hold up strongly like it has done so far. This led to the battle we saw today with the bears taking the market down right from the start and then accumulation around the 200WMA into the close with the bulls winning the day. Indeed, just as the 30DMA was a strong resistance, the 200WMA is an extremely strong support level as well. Like I mentioned before, the market might just trade range bound by the 30DMA and 200WMA for a while more until some significant development arises on the fundamental front.

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

Sunday, October 02, 2011

Dow Failed Repeatedly at 30DMA

What a week it was last week! What looked like a strong and promising week ended with much disappointment despite some better than expected economic data. The Dow did another critical failure at the 30DMA last Friday, closing down by 240 points despite Chicago PMI turning in better than expected. Indeed, the market looks totally technical driven at the moment as traders turn bearish on the unmistakable multiple failure at the 30DMA. Every failure increases the chances of a downside 200WMA breakout, which could have disastrous results. At this point in time, investors and traders definitely are definitely putting more emphasis on safety than growth, being more risk averse. Last Friday's action could also be a result of cautious covering before this week's heavyweight economic data starting with the ISM Index on Monday and the Jobs Report on Friday (see Stock Market Calendar). Could last week's bout of better than expected economic data lead to better showing in both heavyweight numbers this week? No matter how they turn out, it is now a topside breakout of the 30DMA that can save the day. So far, it is looking more and more grim...