Stock Market Analysis

Monday, June 18, 2012

New Home Sale Pleases

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

Fundamentals
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.

Technicals
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.

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