Stock Market Analysis

Monday, July 23, 2012

Dow Ditches With The World

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

Fundamentals
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.

Technicals
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.

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