Stock Market Analysis

Tuesday, November 29, 2011

Dow Goes Sideways As Expected

The Dow closed marginally higher by 32 points today as expected on better than expected economic data.

Today's slew of economic data turned in largely better than expected, especially the Consumer Confidence number, leading to a largely optimistic day. However, short term profit taking quickly set in later in the day and took the market off its best levels for the day. That did not stop investors from moving back into equities from bonds lifting bond yields across the board once again and options traders surprisingly kept total equities put call ratio below par in favor of call options trading for a second straight day in a row, which is something we hadn't seen in a while. It is now a battle between US economic data and news from the Eurozone as every better than expected economic data lifts the market while news from the Eurozone puts pressure on it creating the kind of volatile market condition the US market is going through right now. A better than expected ISM Index and Jobs report later this week would certainly help lift the market for the short term.

As mentioned in my email to paid subscribers yesterday, I expected the Dow to make a few sideways or even slightly negative days these few days following Monday's rally and so it happens. The Dow made a largely sideways day today along the 16,000 resistance zone, which means that it continues to be in danger of turning downwards from here into some nasty lows. As such it is still time to be cautious. A topside breakout will continue the reversal into a longer term volatile bull trend while a bottomside breakout will almost certainly reverse the intermediate trend into a bearish one which could ultimately threaten the primary trend itself.

For now, the Dow remains in short term neutral trend, intermediate neutral trend and primary bullt rend.

Sunday, November 27, 2011

Welcome Back From Thanksgiving!

Well, this year's Thanksgiving leaves little to be thankful for the stock market as investors and traders scramble for safety ahead of the holiday, leaving the market with the ugliest two weeks drop since the July correction. The Dow dropped a total of 4.7% during the short Thanksgiving week alone as investors rightfully stay away in case of any bad new arising from the Euro zone through the long holiday. Yes, the Euro zone continues to be the toxic of global markets and until the toxic is cleared (perhaps with the dissolution of the Euro?) with a painful and significant hit to world markets, I am afraid the market cannot find real strength even if the US economy continues to grow. Interestingly, investors actually started reallocating back into equities last Friday, raising bond yields across the board significantly. Perhaps bond yields are now low enough to consider taking some risk? On the weekly charts, the Dow still look barely hanging on to a bullish reversal pattern but another negative week this week will destroy the pattern and perhaps lead the market into new lows and a new intermediate bear trend. Yes, this is uncertain times that defies precise predictions. Two things are certain, volatility and a slight Bearish inclination in sentiments.

Tuesday, November 22, 2011

GDP Disappoints...

The Dow sunk by 53 points today as economic data turned in largely negative.

US market was hit by a downwards Q3P GDP along with slower sales ahead of the discount week. Bargain hunting in the morning that brought the Dow back into the green took a hit on the FOMC minutes in the after which reinstated higher downside risk due to the European debt issue. Indeed, the European debt issue is an axe hanging over global markets right now and is an issue that almost every economists and financiers think will end with the desolution of the Euro. Investors certainly are cautious ahead of the Thanksgiving holiday, running back for the safety of bonds. Yes, Santa-Claus has failed to come so far. What the world needs is a quick resolution of the Euro issue so that repairs can start in the world markets rather than a prolonged agony that will almost certainly end up the same way. So, will a resolution of the Euro issue result in a global crisis? Well, I personally think the effect globally will be sharp and quick with prolonged effect mostly on the Euro side. However, no matter what happens, as a trader, I will continue to read the market and trade for profit no matter upwards or downwards... as long as it goes somewhere.

It is a good thing that the Dow closed within yesterday's trading range otherwise I would have to put the 11,600 support area into question. For now, it is yet significant enough to call it a downside break. What the Dow does tomorrow will be very critical... will the support level hold?

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

Sunday, November 20, 2011

Welcome to Thanksgiving Week!

Welcome to Thanksgiving Week!

US market will be closed on Thursday with an early close on Friday for the Thanksgiving weekend, as such, it is going to be an extremely short trading week with low trading volume. And low trading volume week always mean a volatile week with relatively significant moves. However, the good news is that the volatility has traditionally been in the favor of the bulls on Thanksgiving week; This combined with the Dow and S&P500 both finding support at the top of their last neutral channel, increases the chances of a positive week this week. So far, Santa-Claus rally doesn't seem to happening this year... could it start this week?

Wednesday, November 16, 2011

US Market Sells Off on Euro Slump

The Dow dropped 190 points today despite better than expected economic data.

Investors sold off today during the final hour along with a slump in the Euro. Investors are certainly watching every news and development over at the Eurozone and would rush for safety at the very first sight of trouble. Today, the first sight of trouble is the slump in the Euro. A selloff in the Euro suggests a decline in confidence in the Eurozone which may reveal itself as some pretty nasty news in the near future. Having witnessed how such news from the Eurozone can affect the US market, it is no wonder why investors rushed back to the safety of bonds today, depressing bond yields across the board and why options traders rushed for put options, creating a spike in the total equities put call ratio in favor of put options trading.

The combined effect of the Euro slump and the 12,000 points resistance resulted in today's retreat. However, the retreat was a relatively mild one and resulted in a rising low supported by the 30DMA. As long as the Dow turn around tomorrow, it would still be in line for good topside breakout.

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

Monday, November 14, 2011

Dow Retreats Slightly At 12,000 Again

The Dow retreated by 74 points today as resistance continues at the 12,000 points level.

There were no economic data or news today to account for today's thinly traded drop, as such, today's drop should be one of short term technical profit taking. Long term bond yields dropped as some investors who do not think the market can stage a bullish breakout reallocate back into equities. This is a week of leading indicators and investors might also be cautious ahead of those numbers as economic data recently has started to become more volatile once again (see Stock Market Calendar).

Indeed, today's market action is largely technical in nature with short term profit taking on last Friday's strong single day gain as well as resistance by the 12,000 points level once again. Indeed, the Dow is back up to the ceiling of the wedge formation it is currently caught in but the good news is that the sell-off at the 12,000 points level this time round is an extremely soft and unenthusiastic one on very low volume. This shows that the resistance might be weakening, thus increasing the chance of a topside breakout. Indeed, a wedge formation occurring along a nice up trend usually leads on to more highs.

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

Thursday, November 10, 2011

Dow Caught In A "Wedge" Once Again

The Dow gained 112 points today on better than expected economic data.

US market celebrated a much better than expected Jobless Claims and Consumer Comfort Index, getting off to a strong start, beat short term profit taking in the morning session to close higher. Jobless Claims unexpectedly made its lowest level since April, dropping to 390K from last week's revised number of 400K. Investors cheered to the news and reallocated strongly back from bonds as bond yields rose significantly across the board. However, general trader's sentiment still seems slightly negative as there was obviously short term selling into the strength and total equities put call ratio persisted above par in favor of put options trading. An above par total equities put call ratio always tells me that the market is still generally uncertain or bearish and can expect to meet all kinds of resistance, which we have witnessed so far. The US market is also caught in a wedge between bad news from Europe and good news on the economic data front with every positive data giving rise to a positive day and then something in Europe taking all that gains away soon. Indeed, until the European issue reaches a firm resolution, the market will not find a committed direction.

Indeed, the Dow is literally caught in a "Wedge" formation right now. A Wedge formation is created when prices go sideways in a narrowing channel. The Dow is clearly caught in a wedge between the rising 30DMA and the 12,000 points level right now. Such formations suggest uncertainty in the market which we all know comes largely from the European side. However, the good thing is that such a "Wedge" or "Pennant" formation occurring along a rising price trend usually breaks out in the direction of its previous trend, which is upwards in this case, when the uncertainties get resolved. As long as the 30DMA level holds up, the short term bull trend isn't in much of a danger.

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

Monday, November 07, 2011

Dow Rallies on European News

The Dow continued to struggle today on last Friday's disappointing Jobs Report but still managed to eke out a gain of 85 points by the end of the day.

It was a largely negative day in the US market today as investors continue to exit on the poorer than expected Jobs Report last Friday. Bond yields continue to drop today as investors continue to move for safe harbors. However, the weakness didn't last long before investors and traders bought into news from Europe in the afternoon, bringing the market back into the black. Total equities put call ratio declined significantly as put options trading declined against call options trading as options traders reduce their hedges and downside speculation today. Indeed, every development in the European debt issue affects US stock markets almost instantaneously and it seems like it is going to take a major development to really trigger off a sustained rally here.

Traders continue to buy into the reversal today on weakness, providing support once again around the 19,000 points area. However, volume was missing from today's market, making today's gain a pretty weak one. Good news is, nothing that happened over the past two trading days changed the reversal pattern. In fact, as long as the bull starts running again, we would be good to call an intermediate bull trend. The Dow is still in a healthy reversal pattern coming out of the volatile neutral trend and still very much set for a new bull leg.

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

Wednesday, November 02, 2011

Dow Meets Support

The Dow gains 178 points today as the market accumulates from the steep 2 days drop.

The Dow gained on relatively thin trading today as ADP employment beat expectations, casting some optimism on Friday's Jobs Report. Fed chairman's speech after 2pm also gave the market a little bit of a boost into the close. Even though it was a pretty big gain in the Dow today, investors didn't quite pour into the market the way they should on really strong days. Trading volume was light and bond yields rose insignificantly across the board suggesting that investors aren't reallocating back into equities much. In fact, options traders continue to keep total equities put call ratio above par in favor of put options trading. All in all, it was a really cautious rally today without much real enthusiasm. Indeed, analysts are expecting a worse Jobs Report on Friday and that kind of uncertainty surely cannot result in clear cut optimism just days before its release.

Today's rally is mainly technical in nature as some traders accumulate around the 11,600 level, which was the seemingly unbreakable resistance level of the neutral channel of Aug to Oct. In fact, accumulation around this area can be a substitute for retesting the 30DMA for reversal confirmation, as long as it follows up tomorrow. So far, this new bull trend still looks set and remains healthy as long as the Dow remains above its 30DMA.

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