Stock Market Analysis

Wednesday, July 11, 2012

Dow Retests 30MA Successfully

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

Fundamentals
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.

Technicals
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.

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