Stock Market Analysis

Monday, April 02, 2012

Dow Gains on Better ISM Index

The Dow gained 52 points today as ISM index beats consensus.

Fundamentals
US economy continues its recovery scenario today as ISM index continue to beat consensus, turning in 53.4 versus 52.4 last month. Investors bought into the great news reluctantly as bond yields barely moved and trading volume lackluster. Options traders on the other hand turned bullish at last after keeping total equities put call ratio above 0.9 for 8 straight trading days (Read about what Put Call Ratio is). Options traders usually keep total equities put call ratio between 0.9 and 1.05 when conditions are uncertain in the market. Anything below 0.9 suggests that options traders are bullish since there is significantly more call options trading than put options trading. Anything above 1.1 suggests bearishness in the same logic. This is the first week of April and heavy weight economic data are released on the first week of every month. The next big one will of course be this Friday's Jobs report. Looking at the way jobless claims have been trending down, we can expect jobs report to be more inclined to beat as well, continuing the economic recovery scenario. Maybe a beat in the jobs report would woo investors back in a bigger way.

Technicals
Trading continues to be more technical than fundamental driven today as the market continues to struggle against making a new high especially with May just one month away. Investors have been so used to "Selling in May and walk away" that in anticipation of such a correction, they may be more cautious and start taking profit strategically even right now. In fact, I saw plenty of selling into the good news and strength today. With an intermediate correction so overdue right now, I would expect on final leg up this month before the correction happens more or more inline with the old adage.

For now, the Dow remains in all out bull trend.

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