Stock Market Analysis

Thursday, May 31, 2012

Economic Numbers Continue Deterioration

The Dow made a volatile sideways day today, closing slightly lower by 26 points.

Market headed lower right off the gate today as every single economic data released today turned in worse than expected; Higher layoffs, worse employment expectation, higher jobless claims etc. Even though it looks pretty ugly, bargain hunter still stepped in early in the session and brought the market back into the black by mid-day. I won't read too much into this "strength" since investors actually ran back into the safety of bonds today, depressing bond yields across the board and options traders continued to keep total equities put call ratio between 0.9 and 1.1, which signifies a largely uncertain market. Tomorrow, we will have the heaviest economic numbers of the week, the jobs report and the ISM index. From the way economic data has presented themselves this month so far, it doesn't look like investors are going to be positively surprised. And if there are no strong positive surprises tomorrow, we could see the market landslide further.

The Dow has been largely predictable in its behavior so far, truly textbook correction. It turned around at the 12,600 points yesterday just like I said it would 2 days ago. Market cannot be more predictable. Its next target would be the 12,200 points where it would test the resilience of buyers around that area. Yes, I think the market would still linger between the 12,600 and 12,200 points level a little longer before things get better.

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

Tuesday, May 29, 2012

Suspicious Rally

The Dow gains 125 points today in optimistic trading coming out of the long weekend.

Long weekends can be dangerous depending on what hits the news and how global market behave on holiday Monday. Global markets ended really well on Monday as no market breaking events happened over the weekend, leading to an optimistic open in the US market today coming out of the long weekend. However, today's rally came on the back of a slew of worse than expected economic data and obvious signs of selling into the strength early in the day. These factors put a big question market on the sustainability and quality of today's rally. In fact, trading volume was relatively low and options traders continued to keep total equities put call ratio between the 0.9 to 1.1 range. All these tells me to be very careful not to interpret today's rally with too much optimism. Unless economic data starts to steady up a bit more, we won't see the kind of sustained rally we would like to.

The Dow visited the 12,600 points level today and retreated slightly below it by the end of the day. Yes, as I have mentioned in previous reports, I expect the Dow to go into a somewhat volatile sideways channel bounded by 12,200 to 12,600 points and this could be what is happening now. The market don't have a lot of reason to go very much lower, putting the intermediate trend at risk, nor does it have any strong reason for a sustained rally. This will be an area of congestion until the mess in the global economic clears up a little or at least show signs of clearing up.

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

Wednesday, May 23, 2012

Another Sideways Day...

The Dow made another completely sideways day today, closing marginally lower by 6 points.

Better than expected housing data today did nothing but fuel the weak bulls and adding to the uncertainty in the market. This led to a market with plenty to be bullish about (the good economic data) and plenty to be bearish about (the negative sentiment, the correction), creating another uncertain volatile market condition. Options traders continue to keep total equities put call ratio between 0.9 and 1.1 today, echoing the uncertainty. Investors also depressed bond yields significantly as more go for the safety of bonds. Indeed, this correction has happened so fast and hard it is difficult to take sides at this point. Especially with some critical economic data still on the recovery so its hard to be completely bearish either.  So how does one profit in a market condition like this? Using my Ride the Flow System of course, a proprietary options strategy designed for maximum profit under volatile market conditions. In fact, I just made 21.5% profit for the month of May! Check out my Ride the Flow System now!

The Dow continued sideways in a volatile manner as I have expected and predicted, no surprises there. In fact, it looks more and more certain that this is the bottom of this intermediate correction and after the ensuing volatile sideways "digestion" channel, we should see the primary bull trend resume. However, the volatile condition might be a fairly extended one which makes it a good time for my Ride the Flow system of course. :)

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

Monday, May 21, 2012

Oversold Rally

The Dow staged an oversold rally on the better than expected Chicago Fed today, gaining 135 points.

Global market staged an oversold rally today before US market opening and the better than expected Chicago Fed released before market open just helped reinforced the strong market sentiment today. However, if the Chicago Fed is a good enough general guide to how the rest of the Fed reports and the next ISM index is going to be, then we might be witnessing the end of the economic data volatility that has gone on for months and the start of a new leg up. However, one number is nothing to read too much into and investors are not showing convincing signs that they are really jumping onto the bandwagon today. Bond yields remained relatively unchanged today as investors continue to be uncertain and options traders continue to keep total equities put call ratio between the 0.9 to 1.1 range as they too aren't convinced of what happened today. Is this nothing more than an oversold rally? It would seem that way...

 The Dow went down quick and hard over the past two weeks just like I said it would. In fact, so hard that it didn't even bother to retest the 30MA for resistance before stretching its leg all the way to the 12,300 area last week. This tells me that indeed this "bear trend" might be a very short one. In fact, with the way economic data seems to be recovering, we might see that sideways volatile trend that I mentioned last week from here onwards before the bulls recover. The sideways volatile channel might most probably be bound between 12,200 and 12,600 so don't be surprised to see the Dow still visit the 12,200 for even slightly below it.

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

Monday, May 14, 2012

Dow Confirms Intermediate Correction

Dow continues lower by 125 points today as world markets take a hit before US market open.

Major global markets ended lower ahead of US market opening today, leading the US market lower right off the gate in an avalanche which it never recovered from. Market sentiment continue to deteriorate today even though there were no major economic releases. Investors are slowly being convinced that selling in May and going away seems to be a better idea now and options traders are already reflecting that sentiment strongly by keeping the total equities put call ratio above 1.2 for a second straight day. Indeed, the sentiment in the market is now decidedly bearish as the bulls have little to nothing left to believe that this market is going to do one more leg up for the short term.

The Dow continued lower today, confirming the double top formation I mentioned last week and confirming this as the intermediate correction I have been talking about for so long. However, don't be surprised to see the Dow stage one final fight to retest the 30MA before going down decisively. Also, don't be surprised to see this correction being a fast and strong one which will make it hard to profit to downside unless you are very nimble. Indeed, as the old saying goes, the bulls take the stairs and the bears jump right out of the window. I expect this correction to be hard and strong going down to the 12,200 points area within a matter of days before going into yet another volatile sideways trend that we have seen over the past couple of months for yet a couple of months before enough bears are slaughtered for the primary bull trend to continue. Yes, this is not the start of a double bottom recession but merely a normal reversal to the mean that every healthy primary bull trend must go through. The global economic recovery is without doubt so less nimble traders should take a much longer stance if you are unwilling to reallocate back to cash in the time being.

For now, the Dow turns a short term bear trend within an intermediate neutral trend and primary bear trend.

Wednesday, May 09, 2012

Double Top Formed, Sell in May & Walk Away!

The Dow completes a double top formation, closing lower by 97 points.

Recent economic data has not lived up to expectations to the point of being able to turn the generally uncertain and bearish inclined investor sentiment around. In fact, it is now fairly clear that investors are actually "Selling in May and Walking Away" as the old adage goes. However, there are still pockets of strength in the market that are actually buying into each dip as we saw today and neither bond yields nor total equities put call ratio are suggesting an all out bearish sentiment yet. However, with all the fundamentals and technicals against the market right now, such pockets of strength only serve as exit points for the more savvy investors. Indeed, I have no doubt that this is the beginning of the huge intermediate correction that I have been talking about in recent months.

The Dow continues to move lower over the past few days, completing the double top formation that I talked about a few days ago. There is no doubt that this huge double top is going to mark the start of the intermediate correction which is long overdue. Immediate support would be around the 30WMA at about 12,600 points. I do not, however, feel that this is the start of a bear trend. This intermediate correction is going to be a volatile one which could take the Dow back down as far as 12,200 points where there should be significant support. After that, the recovery scenario should still come back with no risk to the primary bull trend.

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

Monday, May 07, 2012

Dow Completes Double Top... Danger!

The Dow continued to go sideways, closing marginally lower by 29 points as investor uncertainty continues.

After one week of holiday, I come back to the market and still see it almost where it was before I went on holiday. Almost the same level, same circumstances, same investors sentiments. In fact, the market has stalled since mid-march as the Dow come up against the strong psychological resistance level of 13,200 / 13,300 points. Since then investors have been struggling to decide if other investors would "Sell in May and Walk Away" and nobody wants to be the lesser fool. This resulted in the kind of stalemate that the market was and still is in. Bond yields barely nudged today and total equities put call ratio remained between 0.9 and 1.1. All of these says only one thing... Uncertainty. Traders are quickly losing faith in the market being able to break the 13,300 level and investors are simply not seeing the kind of news or sentiment on the ground for another short term rally.

As I mentioned last week before I left on holiday, it would be dangerous if the Dow failed once again at the 13,200 / 13,300 level and that was exactly what it did the past few trading days. In fact, the Dow once again finds itself beneath its 30MA, which is always dangerous, with the situation made more dangerous by the completion of a nice double top formation (or a triple top if you want to push it). A revisit to the April low is now a possibility and failing which we could see that huge intermediate correction that I have been talking about since March happening right here right now.

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