Stock Market Analysis

Thursday, April 26, 2012

Dow Breaks Out!

The Dow gained a huge 113 points as investors celebrated the better than expected Pending Home Sales.

Fundamentals
Much better than expected Pending Home Sales released at 10am totally erased the pessimistic and lackluster mood set during the opening half hour by the worse than expected jobless claims and Chicago Fed. Investors seem to be paying a lot of attention to housing data lately as better than expected housing data seem to offset the effects of poor showing on other important economic data. Even though today's rally was quite encouraging and marks the third consecutive up day for the Dow, investors were somehow not going back into equities as bond yields actually dropped suggesting investors were still returning to the safety of bonds. This cast some suspicion on the sustainability of this 3-day rally and we could actually see some profit taking tomorrow ahead of the weekend as uncertainty continues in the market.

Technicals
The Dow made a nice and important breakout back above its 30MA today. As I mentioned over the past few days, if the Dow doesn't make it back up there quickly, this correction could go on much deeper. Today's rally did change the downside inclination of the market into yet again a sideways uncertain one. Today's rally also came on the back of relatively low volume so participation is definitely still lacking and we could see the Dow retest its 30MA over the next couple of days. Failing which would increase the likelihood and intensity of the correction.

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

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