Stock Market Analysis

Monday, May 21, 2012

Oversold Rally

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

Fundamentals
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...

Technicals
 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.

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