Stock Market Analysis

Monday, June 25, 2012

Dow Slumps As Expected

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

Fundamentals
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.

Technicals
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.

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