Stock Market Analysis

Thursday, October 13, 2011

Bulls Running Out Of Steam...

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

Fundamentals
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.

Technicals
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.

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