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.

Fundamentals
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.

Technicals
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

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