Stock Market Analysis

Wednesday, May 09, 2012

Double Top Formed, Sell in May & Walk Away!

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

Fundamentals
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.

Technicals
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.

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