Stock Market Analysis

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.


Fundamentals
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.

Technicals
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.

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