Stock Market Analysis

Monday, June 25, 2012

Dow Slumps As Expected

The Dow slumped 138 points today as economic data continues to be volatile.

Global markets were down before US market opening, casting a pessimistic shadow on the pre-opening. This is reinforced with the worse than expected Chicago Fed which had investors running for shelter despite a better than expected New Home Sales data. Even though fundamentals continue to be weak and volatile, a piece of data seems to be trending upwards quite solidly lately and that could form a solid foundation for a good rally in the future; Housing Data. Housing data seems to be picking up of late and a recovering housing sector is definitely critical to a recovering economy. However, this effect would be a long term one so don't expect it to be a market changer. In fact, housing usually moves as much as 6 months to a year ahead of the stock market. So if this is anything to go by, it could suggest a good rally 6 months to a year from now. Which really ties in nicely with the current short term volatility. Total equities put call ratio is up all the way to 1.15, which is a bearish vote cast by options traders. Bond yields also dropped significantly across the board, reinforcing the current bearish state. It seems like the market could go lower still.

The Dow did exactly what I said it would, turning down the very next day I said it would last week in my last post and tested the 30MA today. Even though the Dow did get back to up end right on its 30MA, we could still see it go lower from here since economic data continues to be volatile, and trade within the large volatile channel I mentioned in the last few posts. In fact, it could even revisit the 12,100 points level. Indeed, we are in the toxic waste clearing phase of every recovery phase and such a phase is always marked by an extended period of volatility before the real bulls can roll.

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

Wednesday, June 20, 2012

Slower Economic Outlook

The Dow went sideways, closing down marginally by 12 points on slower economic outlook.

Nothing surprising came out of the FOMC releases today; Slower outlook and rates kept unchanged. Even though investors did sell off slightly on the releases, bargain hunting still came in towards the end of the day to bring the market back up to almost breakeven. In fact, bond yields were higher across the board as investors were somehow wooed back into equities despite the slower outlook. Options traders continue to be non-directional, keeping total equities put call ratio between 0.9 and 1.1. Total equities put call ratio seem to reflect short term trading sentiments best and a reading below 0.9 indicates significantly more call options being traded and a generally bullish mood in the market while a reading above 1.1 indicates significantly more put options being traded and a generally bearish mood (learn about what Put Call Ratio is). I have people asking me why I kept on saying the market is largely uncertain when the market has been making a solid run over the past weeks? Well, the problem with such a run is that it has weak or no fundamental or technical reasons behind it. As such, every up day only brings with it the sense that it is the final up day of the leg, making it look more like a bull trap than anything.

Indeed, this rally does look nothing more than a bull trap until it is confirmed with a success 30MA retest. Until that happens, you won't see the market go very much further from this point onwards as the market enters short term overbought condition. In fact, chances are that we would see the market turn south from tomorrow onwards for the 30MA line.

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

Monday, June 18, 2012

New Home Sale Pleases

The Dow closed slightly negative today by 25 points after last week's strong breakout.

Global events continue to be shaky as investors decide to take some profit off the table despite New Home Sales turning in its strongest level since the recovery started. Housing market is a critical market for every developed economy and a recovering housing sector is critical for the recovering US economy. After months of volatility, we can see that bargain and value hunting is clearly underway in the market, providing support and strength. Despite the strong market performance over the past few trading days, investors are still going into longer term bonds as bond yield rose over the past few days and options traders continue to keep total equities put call ratio at 1.0, indicating uncertainty. Yes, it is still a very uncertain and volatile market condition.

The Dow did a surprising breakout last week, breaking the 12,600 and 30MA level. However, this did not change the volatile sideways inclination of the market but merely widened the volatile channel to 12,800 - 12,100. We should see a retest of the 30MA over the next few days as buying dries up. If significant strength is seen at the 30MA along with significant developments on the fundamental side, then this breakout could spell the end of this intermediate correction. However, this seems to be on a less likely side.

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

Monday, June 11, 2012

Dow Slumps 142 Points

The Dow lost 142 points today as worries over the Euro zone resumes.

US market opened strongly today along with the strong performance in global markets pre-open but quickly succumbed to selling pressure as issues in the Euro zone begun to take headlines. In fact, it is not unusual to see a negative Monday if global markets are surprisingly strong on Monday pre-open. The US market tends to perform opposite to global market performance on Mondays. Bond yields dropped across the board as investors returned to the safety of bonds and options traders continue to keep total equities put call ratio between 0.9 and 1.1 suggesting indecision.  It is going to be a volatile week ahead ending in a Quadruple Witching on Friday and I suspect the market is going to be largely technical driven, just like today.

I have predicted many weeks ago that the Dow is going into a sideways volatile channel bounded by the 12,600 and 12,200 points. Today, the Dow turned around after opening at the 12,600 area and headed strongly southwards in continuation of my prediction. Of even more significance is the fact that it visited the 30MA intraday and failed. This is an extremely bearish setup which may lead to a revisit to the 12,100 points area. However, don't be surprised to see a slightly positive day tomorrow or a largely sideways week ahead as every big day leads into a few slightly opposite or sideways days.

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

Monday, June 04, 2012

Dow Turns Negative Year

The Dow turned negative for the year after last Friday's drop, following up with another 17 points drop today.

Yes, there seems to be plenty of fundamental reasons for the recent drop as almost all major economic data that turned in these two weeks are worse than expected, by a mile. Last Friday's double whammy by the Jobs Report and ISM index took the Dow straight into negative for the year and today's Factory Orders continued to tell investors to go back to bonds. Indeed, it seems like the toxic waste clearing phase of this recovery is well under way and we could expect a lot more volatility in the year ahead as global economies deal with their fundamental issues. Yes, just like what we experienced in the last market crash of 2001, the toxic clearing phase can take as long as a couple of years before the real bulls can run, so it is no surprise at all. If you have not pursued an all out bullish strategy as early as 2009, this is definitely not the time to start. In fact, this is the time for volatile options strategies to shine. Like my Ride The Flow system, which has been making over 10% a month on the overall portfolio lately.

No surprise, the Dow continues to struggle as expected and after last Friday's big drop, a few sideways or slightly positive days are to be expected as always, no surprise there either. With plenty of fundamental weight on the market, there is no doubt now that this year might just end up negative and going from the technicals, a negative year this year is definitely in order. Ever since the 2001 market crash, which changed the way the stock market behaves, there has not been a 4 straight positive year streak. In fact, prior to last year, there has not been a 3 straight positive year either. We already had 4 straight good years going from 2009 to 2011 which is already a stretch. Going by this expectation, I would expect the Dow to trade within a larger volatile channel of probably between 12,500 to 10,500 for the rest of the year, ending the year negative in the end.

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