Stock Market Analysis

Thursday, April 19, 2012

Economic Data Volatility Begins

The Dow lost 68 points as economic data becomes more volatile.

 Fundamentals
Like stock prices, economic data doesn't go straight up or down. It usually goes up or down steadily for a few weeks or months and then go into a period of volatility where some data will come in very good and some very disappointing. This usually goes on for a few weeks more before the previous trend resume. Sounds exactly like the stock market, right? In a way, the stock market behaves the way it does due to the way economic data and the economic performance they represent behave. Right now, we are clearly in one of these volatile economic data period once again as today's economic data turned in largely disappointing, leading to a negative trading day. The better than expected Leading indicators did nothing to reverse the largely negative tone set by the disappointing jobless claims, existing home sales and Philley Fed. Even though market is volatile today, investors really didn't return to the safety of bonds in the big way we would expect of a very negative day. Bond yields barely nudged downwards suggesting that investors really isn't as negative about all these as they are supposed to. Options traders continue to be uncertain and continue to sit on the fence, keeping total equities put call ratio exactly at 1.0 (read more about what Put Call Ratio is all about). All in all, it was a negative day with a very uncertain tone to it. Investors and traders weren't all out bearish even though the market ended in the red but neither did they display any signs of bullishness as the market continue to trade with a sense of being overdue a significant correction and that investors are waiting to "sell in May and walk away".  

Technicals
The Dow made a dangerous followup to downside today, turning down from barely above the 30MA two days ago. This could be the start of the intermediate correction that I have been talking about so far especially now that fundamentals are supporting to downside as well. Immediate support would be the April low, failing which will confirm the intermediate correction. The only way out of this is a strong up day tomorrow but it would be a tough call with April options expiration tomorrow. The market is now more inclined to going into an intermediate correction than to recover to upside.

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

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