First Week of June 2011

Welcome back from the Memorial Day long weekend! The Dow retreated 0.56% last week on a week on week basis as economic data continues to turn in worse than expected.

Even though it was a net negative week last week, the market was still a strong one as it bottomed out and reversed on last Monday's drop. Even though the Dow is still trading within the trading range of last Monday's drop, the strength it found around its daily 50MA is extremely encouraging and do result in more upside than downside possibility. However, on the short term, the Dow still needs to get atop the 30MA before it can safely make new highs.

This is a holiday shortened week but still a heavy weight one as it is the first week of June. As such, we will be getting the ISM index on Wednesday and Jobs report on Friday (see Stock Market Calendar). Inline with most of the leading indicators that were released, analysts are expecting a lower ISM index and nonfarm payroll which can result in some volatility this week. Indeed, the US market is in a volatile uptrend now and continued volatility is to be expected.
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Market Holding Against Disappointing Data

The Dow moved sideways closing marginally higher by 8 points today as both GDP and Jobless Claims disappoints.

Fundamentals
As I have expected, GDP turned in worse than expected today at 1.8% versus 2.1% consensus. Yes, the poorer than expected result was largely predicted by all the leading indicators so far and by the lower ISM index earlier this month. The much higher than expected Jobless claims was a surprise as analysts were expecting a lower number this time. Jobless claims turned in 424K versus consensus of 404K. All these data were released before market opened today and led to a deeply red opening. However, technical bargain hunters stepped in shortly after and brought the market back up into the green.

Technicals
Even though it is just a sideways day today, the strength displayed at this critical support level does reinforce confidence in the continuation of the current intermediate bull trend. However, we would expect light trading and probably some volatility tomorrow ahead of the long weekend. If you are in stocks, make sure you protect some of your positions using the Protective Put options strategy.

For now, the Dow remains in a short term bear trend, intermediate bull trend and primary bull trend.
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Market Down Despite Better Sales

The Dow declined by 25 points today despite better than expected sales data and new home sales.

Fundamentals
Better than expected sales data and new home sales gave the market an optimistic start this morning. However, this quickly gave way to a heavy and steep sell off following the new home sales release which brought the market to a low it never recovered from for the rest of the day. There are no strong fundamental reasons to explain the sudden ditch except for the possibility that some institutions are strategically "Selling in May and trying to Go Away" during this final week of May.

Technicals
Even though today's drop was somewhat discouraging and points towards weakening sentiments in the market, it really traded within yesterday's trading range which makes today more of a sideways day rather than a negative one. Even though the Dow closed below its critical 50MA today, it was insignificantly so and it would be more prudent to wait one more day for a clear signal.

For now, the Dow turns a short term bear trend, intermediate bull trend and primary bull trend.
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GDP Week...

Last week was indeed a volatile week as I have predicted early last week. The Dow lost 83 points or 0.66% on a week on week basis as the market got thrown around by volatile economic leading indicators and options expiration.

This week's heavyweight economic release would be the 1st Quarter preliminary GDP on Thursday. Analysts are still expecting a very optimistic 2.1% real GDP despite all the volatilities in the leading indicators so far. Those who had yet to "Sell in May and Go Away" have been protecting their stocks using put options (This is known as the "Protective Put)as total equities put call ratio remains high in favor of put options trading.

On the technical front, even though last Friday's drop was a little disappointing, it does nothing to change the rebound yet. Major indices are still rebounding from strong short term support levels and with strong bullish divergence supporting the rebound, odds continue to cast favor on the upside.
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Leading Indicators Week

The Dow retreated marginally by 0.34% last week on a week on week basis.

It was a relatively quiet week last week without any market moving news or events, resulting in a somewhat sideways week. Investors were back and forth between equities and bonds in largely technical based trading. The market seems to be entering what is known as a "Volatile Bull Trend". A volatile bull trend is characterized by an uptrend made up of sharp ups and downs forming continuous "Wave" like patterns instead of a steady and smooth uptrend. Such a bull trend signifies uncertainties usually at the economic level and may lead on to more severe intermediate pullbacks in the months to come. We saw the same pattern back in the second half of 2009, leading to the intermediate pullback in Jan 2010.

So far, the recovery in the stock market since 2009 have been strong and somewhat ahead of the real economy. It is also overdue a significant pullback the kind we saw in May 2010. As such, the months ahead might be slightly more volatile but still steady enough for mid term / long term investment. This week is May options expiration week, as such, we expect to see more volatility towards the end of the week with Monday's Empire State Index setting the mood for the week (see Stock Market Calendar). The third week of each month is what I call the "Leading Indicators Week" because it is when the three major ISM index leading indicators; Empire State Index, Philley Fed and Leading Indicators, are released. Analysts are expecting some volatility in these numbers as we go through this short term period of volatile economic data. All in all, expect a fairly volatile week ahead.
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Dow Gains on Mixed Retail Numbers

The Dow closed higher by another 75 points amidst mixed retail numbers.

Fundamentals
Even though retail numbers today are largely mixed, the market still maintained a strong sense of optimism as some institutional investors begun to return to the equities market due to the low bond yield. This led to bond yields rising across the board significantly. The market is currently very much technical driven so lets take a look at the technicals.

Technicals
The Dow did the critical breakout I mentioned to paid subscribers yesterday, breaking out of the trading range of last Thursday's drop and establishing a headstart for a new highs. The Dow is also way off short term overbought condition so there are plenty of headroom to move with immediate resistance at about 13,000 establised back in May 2008 when the market failed to breakout.

For now, the Dow turns a short term bull trend, intermediate bull trend and primary bull trend.
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Jobs Report Surprises

The Dow ended a negative week last week closing lower by 1.34% on a week on week basis.

What was shaping up to be a pretty ugly week was made slightly less so by the better than expected Jobs Report last Friday. Nonfarm payrolls turned in a huge 244K vs consensus of 185K, preventing the Dow from moving any lower. In fact, some investors are already being wooed back into the equities market on the positive jobs report, raising bond yields slightly across the board.

Indeed, as I have mentioned last Thursday night, the market could react positively to the Jobs report no matter how it turned out and it indeed was so. However, on the technical front, there still isn't sure signs of bullish momentum especially since last Friday closed way off its intraday high. As such, the Dow could still play out my prediction of going down to its 30MA short term support before rebounding to new highs.

This is going to be a fairly quiet week (like all second weeks of the month) with no major economic releases. A time for investors to make sense of what have happened in week one and to make an investment decision. Indeed, I do expect this short period of economic data volatility to have run its course and we should see some real recovery in the month ahead. Lets continue to trade with the trend.
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Jobless Claims Makes Largest Surge Since Recovery

The Dow took a second day hit today, closing lower by 139 points as jobless claims continue to disappoint.

Fundamentals
Jobless claims continue to disappoint investors this week, turning in 474K versus consensus of a lower 410K. Indeed, investors looked past last week's higher jobless claims as a one off event but this week's disappointment says something might really be wrong in the economy. In fact, these two weeks marked the largest surge in jobless claims since the recovery started in 2009. So, is this still the short term trend of economic data volatility that I keep talking about? Yes it is. The economy is recovering but never straight up. There will always be periods like this which makes everyone wonder if a "double dip" is going to strike but it will all work out fine. Of course, today's jobless claims did give institutional investors more reason to "Sell In May and Go Away". Bond yields ditched across the board today as safety hungry institutional investors reallocate back into the safety of bonds. Since much of the pessimism seems to have been priced in already, tomorrow's Jobs Report might actually be a positive no matter how it turn out. Lets see what happens.

Technicals
As I have mentioned all week long, we do expect the Dow to go as low as 12,400 in order to properly digest all of the short term overbought condition before the market can make new highs. We would want to see support hold at 12,400, which coincides with its short term 30MA support as well. If the market holds and turns around at that level, or earlier, we should see another nice leg up to new highs.

For now, the Dow turns a short term neutral trend, intermediate bull trend and primary bull trend.
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First Osama-Free Day

The Dow continued to move sideways today on mixed retail data, closing absolutely +0%.

Fundamentals
Today's the first Osama-free day but that doesn't seem to be doing much for the stock market. In fact, investors continue to be extremely cautious ahead of possible reprisal from dead Osama's organisation. This, along with the "Sell in May and Go Away" sentiment that is going on, caused bond yields to continue dropping across the board as investors reallocate back into the safety of bonds. Today's mixed retail data also serve to fuel such a rush for safety. However, even though investors have been moving strongly back into bonds recently, the market doesn't seem to have taken a hit at all as traders and the herd continue to take over strongly. In fact, investors are likely going to be conservative all week ahead of the Jobs report which could also turn out worse than expected with the current short term trend of volatile economic data going on. Yes, like stock prices, economic data also move in waves rather than straight upwards or downwards. It is going to be a volatile ride whole week long.

Technicals
The Dow continued to move sideways as we have expected and as I mentioned to paid subscribers yesterday, the Dow is likely not only to move sideways but perhaps also make a short term pullback to its short term support level at about 12,400 before it can move further up healthily. The market is still short term overextended so lets not fall for the bear trap.

For now, the Dow remains in a short term bull trend, intermediate bull trend and primary bull trend.
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Sell in May and Go Away?

Sell In May And Go Away?

Welcome to the first day of May! Well, the old adage rings by our ears once again... Should we sell in May and go away? We saw many investors actually doing that over the past few trading days through the dropping bond yields as investors reallocate back into the safety of bonds, taking profit on the gains over the past few months. Traders seem to be the ones taking over the market on the recent successful technical rebound, taking the market ever higher on investors' exit.

What does sell in May and go away mean? Well, it is an old stock market wisdom that says it is wiser to take your profit in May and stay away for the rest of the year until year end. Are there any facts supporting this? Well research has shown that the period between May to October of most years underperform the period of January to April in most countries. As such, there is an incentive for big institutional investors to exit the game by May especially if they have made a good profit during the first four months like they have so far in 2011.

Does that mean that there is no money to be made each year in the period of May to October?

Of course there is money to be made. In fact, there will always be plenty of day trading and swing trading opportunities under any market conditions. This seems to affect the stock buy and hold investors who hold their stocks whole year long the most. As short term options traders, there will always be explosive opprtunities.

So, it is the first week of the month again, ISM index and Jobs report week (see Stock Market Calendar). Even though the US market is clearly going through another short term period of economic data volatility, traders don't seem to be concerned at all. In fact, all leading indicators seem to suggest a poorer ISM index this time round which will definitely have an impact on the market. As such, I would not be surprised to see a pullback week this week from this short term overextended market. Immediate support is around the 12,400 level. It also seems like a lot of investors would be singing to the tune of "Sell in May and Go Away" this year.
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