Stock Market Analysis

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.

Fundamentals
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.

Technicals
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.

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