Stock Market Analysis

Monday, July 30, 2012

Buying Dries Up...

The Dow turned sideways, down marginally by 2 points as buying dries up after best two days run.

The Dow did its best two days run last week following good news from the Euro zone. However, buying completely dried up today leading to a sudden slump in trading volume as investors rushed back to the safety of bonds ahead of this week's heavy weight numbers. This rush back to bonds resulted in a significant drop in bond yields across the board. Indeed, after the best two days run, it would be prudent to take some short term profit before the uncertain ISM index coming on Wednesday and Jobs Report on Friday. The ISM index and Jobs Report are the two most important economic indicators watched by investors and the Fed every month.

The surprising news out of the Eurozone last week broke the bearish setup last week as the bulls once again made... its final exhaustive run. Indeed, this two days rally is so strong that it looks nothing more than an exhaustive rally which finally led to a drying up of volume today. Most significantly is the fact that our short term stochastics continue to form bearish divergence even against this new two months high with the Dow making tight progressively higher peaks while the stochastics make progressively lower peaks. This is an extremely bearish setup which cries profit taking and rush for safety; which we saw investors do today. There is no doubt that the Dow will retest its 30MA once again.

For now, the Dow remains in short term and intermediate term neutral trend and primary bull trend.
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Wednesday, July 25, 2012

US Market Mixed on Earnings & Uncertainty

The Dow gained 58 points in a mixed trading day with the Nasdaq closing down by 8 points.

Uncertainties on a global scale along with the lousier than expected New Home Sales and earnings season resulted in a mixed volatile trading day with a mixed close. New home sales pulled back after two months of gain, which is very much expected. Everytime the Nasdaq does something different from the Dow, the Dow follows shortly. This means that the market is still very much bearish inclined as investors continue to retreat for the safety of bonds today as bond yields declined steadily across the board. Options traders also took total equities put call ratio above 0.9 once again, indicating uncertainty. Indeed, this is an extremely volatile period with earnings and global uncertainty. This Friday's GDP is also extremely uncertain, so we can expect to see more returning to safety tomorrow ahead of Friday's release. Lets see what the technicals say.

No surprises there as the Dow breaks below its 30MA following the bearish divergence I mentioned on Monday. Bargain hunters stepped in today but did nothing significant to change the now bearish inclination. A revisit of the June low remains in the books.

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

Monday, July 23, 2012

Dow Ditches With The World

The Dow ditched 101 points today as global markets dropped on renewed Euro zone concerns.

The Dow was already pointing sharply downwards in pre-market futures as global markets dropped on renewed Euro zone concerns. US market opened sharply lower but bargain hunters fought back and took back more than half the losses by the end of the day. Chicago Fed also turned in negative even though it did beat consensus. It seems to investors that many of the fundamental reasons for this new bull trend is now under attack and questionable in the short run. Bond yields dropped across the board as investors rush for the safety of bonds. Even though total equities put call ratio is below 0.9 today, indicating a bullish sentiment, it did go to 1.0 last Friday which puts a question mark on today's "bullish reading". Overall, I would say that we are in the 2005-2006 phase in the recovery scenario where a lot of uncertainty arises from all the toxic clearing, which can take years to clean up. This means years of volatile up and down market with no strong trending as investors will be slammed with bad news as quickly as they are greeted with good ones. Such is the time to be nimble and be able to catch those short explosive trends.

With the fundamentals that started this new bull trend in question, the Dow also displayed a clear bearish divergence on our stochastics indicator. A bearish divergence tells us that this bull has ran out of steam and is now in danger of a significant downturn. Even though the Dow did get back up onto its 30MA today, which would be vitally important for the continuation of this bull trend, the bearish divergence today told us that it could be nothing more than a struggle in vain. Yes, bearish divergences are that powerful, especially in uncertain market conditions such as this one. We could see the market revisit the June low from here and I have already pre-positioned my stock options picks subscribers with bearish picks today.

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

Monday, July 16, 2012

Dow Pulls Back on Dismal Retail Sales

The Dow pulled back slightly by 49 points today after last Friday's big rally.

Retail sales disappointed today, giving reason to take some short term profit off last Friday's rally even though the Empire State Index surprised to upside and gave more reason to hold for the longer term. Bond yields dropped across the board as investors scurried for the safety of bonds once again while options traders continue to keep total equities put call ratio within the uncertain range of between 0.9 to 1.1. Today's Empire State Index was completely overlooked and is what I regard as the most important piece of information today. The market is at a critical junction where important economic indicators such as the ISM index and jobs report need to rebound strongly in order to continue the recovery scenario. The Empire State Index today did just that, setting up for probably better ISM and GDP for the coming month and that is the real underlying strength needed to take this market higher for the longer term.

No surprise in the market as the Dow rebounded right the very next day following my prediction last Thursday. A few sideways or slightly negative days always follow strong single day rallies like I always said and that's exactly what we got today. Completely textbook behavior in the market. Things are so predictable and makes so much sense when looking at the technicals compared with the fundamentals. Like they said, its all in the price, nothing else really matters. Expect a few more volatile days running up to this Friday's Quadruple Witching.

For now, the Dow remains in all out bull trend.

Wednesday, July 11, 2012

Dow Retests 30MA Successfully

The Dow retreated another 48 points today despite better than expected sales figures.

Despite posting better than expected sales figures today, investors continued to sell off today on the profit taking sentiment that is prevalent in the market since last Friday's jobs report. So is it time now to join the bandwagon and close your longs? The fact that bond yields remained stagnant today signified that investors are already done with the selling and that they might actually be buying into the weakness from the late throwers today as we can see towards the end of the day, lifting the market significantly. Indeed, fundamentals are improving globally despite short term volatility and that sets the stage for buying into weaknesses and having a longer perspective. Tomorrow's jobless claims would have a significant impact though as the market is very "jobs sensitive" since last Friday. Jobless claims improved significantly last week so chances are high that tomorrow is going to beat consensus since jobless claims usually move in one direction for at least 2 weeks before pulling back slightly and that consensus is expecting a slightly higher number than last week.

The Dow tested its 30MA today as I expected in my last post. Most importantly is the fact that even though it went below the 30MA intraday, it managed to climb back up above the line by the end of the day. This is an extremely bullish pattern especially coming on a fifth straight down day. This puts the odds of reversing upwards from here extremely high. In fact, one of the bullish support indications today is the fact that the VIX actually DROPPED today. VIX usually move opposite to the market; when the market is down, VIX goes up and when the market is up, VIX goes down. However, once in a while at critical reversal points, you could see the VIX pointing in the same direction as the market and that always point towards an extremely strong reversal point. In this case, the VIX supports a successful retest of the 30MA and a bullish reversal from here.
(Learn more about the VIX)

For now, the Dow remains in an all out bull trend.

Monday, July 09, 2012

Dow Continues Pullback

The Dow continues its pullback, dropping 36 points today as global markets ditch.

Jobs Report failed to meet consensus last Friday, leading to a huge single day drop which affected global markets on Monday opening. However, the truth is that even though consensus was not met, the headline was still better than last month, which isn't a bad thing at all. This is perhaps why we are not seeing the kind of all out landslide today typical of a really bad jobs report. Investors continued to run for the safety of bonds today, depressing longer term bond yields significantly. Options traders also returned to their "iffy" mode, taking total equities put call ratio once again back within the 0.9 to 1.1 range since last Friday. This is going to be a relatively quiet week with focus on jobless claims on Thursday.

As expected, the Dow pulls back towards its 30MA once again like I said it would last week. Indeed, the Dow needs to retest the 30MA for strength before this new bull trend has any legs. Last Friday's jobs report seriously took the underlying fundamentals away and put this new bull trend in doubt once again. In fact, I won't be surprised to see the Dow going volatile sideways a bit from here until numbers start to recover again. This will happen if the 30MA fails to hold up when tested.

For now, the Dow remains in all out bull trend.
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Thursday, July 05, 2012

Dow Drops 47 Points Despite Better Jobless Claims

The Dow dropped 47 points today despite better than expected Jobless Claims.

The market continue to succumb to profit taking pressure today despite a much better than expected Jobless Claims numbers. Yes, despite a terrible ISM reading, the housing and jobs market seems to be sending out some very healthy signal and that forms the fundamental needed for some upside speculation. In fact, the total equities put call ratio also turned in its most bullish level since April as options traders, who has been uncertain about the market direction since April, turn decidedly bullish at last. Bond yields dropped slightly across the board as investors continue to take profit today and move back slightly into bonds. Overall, fundamentals have begun to improve both in the US and the Euro zone and holds great promise for the mid to long term.

No surprise today as I have expected the Dow to move largely sideways since Monday due to last Friday huge rally. However, it is clear that the market is still extremely bullish especially since it survived such a terrible ISM reading. However, the Dow is still short term overbought on relatively low trading volume. This means that we could still see it pullback slightly to muster some "energy" before making new highs. However, with the clearly bullish setup, every pullback marks great bullish entry points.

For now, the Dow remains in all out bull trend.

Monday, July 02, 2012

Dow Completes Reversal

The Dow pulled back slightly by 8 points today as ISM index disappoints.

Something changed fundamentally last Friday which completely changed the previously uncertain mood of the market; The EU deal. The agreement struck at last Friday's meeting opened the first real door to resolving the EU issues and will definitely benefit the global economy well executed. This led to a huge rally last Friday and a largely sideways day today despite the lousiest showing in the ISM index since 2009. The ISM index went below 50, suggesting contraction, for the first time since the recovery begun in 2009. This was largely foretold by all of the regional fed releases last month. However, such a dismal number would normally have a much bigger negative effect on the market. This shows that there are optimism enough in the market arising from last Friday's event to almost completely offset the effect of such a lousy ISM index. However, investors did retreat to bonds today, bringing down bond yields across the board and options traders continue to be undecided, keeping the total equities put call ratio between the 0.9 to 1.1 range. This is also a holiday shortened week with the Independence Day holiday coming up on Wednesday and a halfday market tomorrow, so we should not see strong buying tomorrow.

The Dow completely changed its volatile sideways neutral behavior and completed an intermediate turnaround pattern with last Friday's rally, successfully re-testing the 30MA (which I previously thought not possible) and rebounding. This pattern marks the end of the intermediate correction and the resuming of the primary bull trend. However, with such a strong rally last Friday, do not be surprised to see some profit taking, taking the market largely sideways over the next few trading days.

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