Stock Market Analysis

Monday, April 09, 2012

Start of Intermediate Correction?

The Dow dropped 130 points today as the market succumbs to mounting resistance.

Fundamentals
US market definitely erased all Easter smiles from the face of investors today. Despite the continued trend in recovering economic data, US came out of Easter weekend today succumbing the bears right off the gate. Indeed, the US market has been largely technical in nature over the past couple of weeks, selling into each show of strength. This is the kind of market behavior that usually precedes a significant correction. Looks like "Sell In May and Walk Away" is becoming "Sell in April and Walk Away" this year as investors move further and further ahead of known market anomalies. Indeed, known market anomalies that has been taught in finance schools for decades has been observed to become gradually earlier than they used to in the past largely because of better education and information allowing investors to move ahead of such known anomalies. Such is the market condition where good news lead to small sell-offs and bad news lead to landslides.

Technicals
The Dow broke through its short term support marked by its 30MA today. Every downside breach of the 30MA could well market the start of an intermediate correction and the market is definitely overdue one such correction now. The possibility that this is the start of an intermediate correction is also supported by the fact that the Dow recently failed at the 13,300 level, making a small double top formation. Such a formation occurring at the top of an extended bull trend can be extremely dangerous and could confirm the start of an intermediate correction if the Dow fails to turn around and get back above the 30MA over the next two days.

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

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