Stock Market Analysis

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.

Fundamentals
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.

Technicals
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.

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