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.

Fundamentals
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.

Technicals
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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