Stock Market Analysis

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.

Fundamentals
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.

Technicals
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.

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