Stock Market Analysis

Thursday, August 30, 2012

Dow Dips Ahead of Ben Speech

The Dow sank 106 points today ahead of Ben's speech tomorrow and amidst mixed economic indicators.

More mixed economic data today, worse than expected Jobless Claims but better personal income and outlay. Such mixed economic data has been sending investors into a turmoil of late, creating this kind of extremely volatile bull market, one which takes one big step forward and ten small steps back. News of how Ben isn't good enough for his job really isn't helping especially on the eve of his speech. However, the good thing about such media overhype is that most of the selling would have been priced in and then when the real event hits the wire, it would usually have lesser downside than upside potential. Investors rushed for the safety of bonds, depressing bond yields while options traders kept total equities put call ratio slightly above par in favor of put options trading and causing a surge in volatility. If you ask me, all of these stunk of overdoing and we could see a dramatic turn around following Ben's speech tomorrow.

The Dow failed to rebound at its 30MA like I said it will but decided to continue in its volatile uptrend pattern of dipping below 30MA before returning upwards. Indeed, this is what a volatile bull market is all about. Big ups and big downs with net effect of climbing upwards. So far, nothing in the charts suggest that this is the start of a significant downturn but if the Dow should make a significant down day tomorrow, this would change. Indeed, this continues to be the kind of market condition for the strong hearted.

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

Monday, August 27, 2012

Dow Sideways After Friday Rally

The Dow moved sideways today, closing marginally lower by 33 points due to final hour profit taking.

Dallas Fed was the only significant number to hit the wire today and it turned out better than expected, lifting the market back up to positive shortly after a negative opening. However, uncertainty and profit taking sentiment is still strong in the market as the market succumbs to profit taking during the final hour, closing the day just slightly negative. Even though investors went back to the safety of bonds, depressing bond yields, options traders continue to trade with a bullish sentiment, keeping total equities put call ratio below 0.9, which is significantly in favor of call options trading. Indeed, the reversal action in the market now is hard to be bearish on for the short term so lets take a look at the technicals

Like I've always said, a few sideways or slightly negative days following strong single day rallies such as the one last Friday, is to be expected as short term profit takers step in. So far, nothing in today's trading or news contradict the 30MA rebound continuation pattern of the Dow and with the Dow significantly off short term overbought condition, we can expect the market to move higher from here. Of course, a few more sideways days like this for short term profit taking is still to be expected and only makes better entry points.

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

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Wednesday, August 22, 2012

Dow Pullback Continues

The Dow continued downwards today as home sales data failed to impress, closing lower by 30 points.

Existing home sales failed to live up to expectations today even though it was higher than last month. This led to a huge sell off after a slightly negative opening. Indeed, ever since the jobs report, investors have been waiting for more good news on the economic front in order for them to keep buying but it never came. However, sentiments turned around following the FOMC minutes in the afternoon suggesting the possibility of more easing in the near future. Bargain hunters jumped in on the lower prices but failed to bring the market back up positive before closing as investors were rushing out of the equities market at last after holding out for so long, into the safety of bonds. Bond yields dropped across the board as investors sell off to bargain hunters as options traders continue to be largely uncertain, keeping total equities put call ratio near par. These indicators completely support my long held view of longer term bull trend (due to possible easing) with current volatility (due to volatilities in global market and economic data due to toxic clearing).

No surprise today as the pullback continues following my report to paid subscribers yesterday. However, the good thing about this pullback is that it has held off long enough for the Dow's 30MA to actually catch up quite a bit and is now once again in a very healthy distance with the market just off short term overbought condition. This means that this bull may resume sooner than we think and that might coincide with all that possible policy easing.

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

Monday, August 20, 2012

Dow Sideways on Economic Activities Contraction

The Dow continued sideways today as economic number persist in contraction.

Chicago Fed indicated an improvement in economic activities but remained in negative territory which suggests contraction. Investors took profit on the news in the morning but clearly plenty who are buying into the weakness, lifting stocks all the way through the rest of the day. However, investors seemed to have slowed down buying into equities as bond yields remained relatively unchanged across the board. Options traders have also turned uncertain, keep total equities put call ratio near 1.0. Indeed, the sense that the market has over-stretched and running out of steam is overwhelming in the market, especially with economic data still turning in slightly less than desirable.

The Dow didn't head down for a 30MA retest as I have expected but rather took its rather tired rally up against the new high resistance of 13,300 points. With the market this overbought and running out of steam looking at the dismal trading volume today, that 30MA retest might still be in the books. However, looking at the intermediate pattern, the Dow has broken out of a previous congestion pennant, retested the top of the pennant channel successfully and rebounded. This is definitely a good continuation pattern despite short term volatility.

For now, the Dow turns all out bull trend.

Tuesday, August 14, 2012

Investors Continue Move To Safety

The Dow continued sideways today, gaining marginally by 2 points on mixed sales data.

Sales data today were completely mixed with Retail Sales posting some encouraging gains that led to an early positive session which led to a sell off in the afternoon as neither all the other sales data today failed to impress. In an economy based on consumerism, all consumer related data such as retail sales and consumer sentiment, have significant impact on the stock market. Investors took off back to the safety of bonds, causing a sharp rise in bond yields across the board. This is obviously a move to safety ahead of tomorrow's Empire State Index, Thursday's Philley Fed and Friday's Leading Indicators. Indeed, investors have largely turned risk averse at this point in time and will likely remain so until the market show some real breakthrough.

The Dow continued to go sideways along the 13,200 points level and while trading volume picked up today, following yet another hangman signal formed yesterday (as I have mentioned to paid subscribers yesterday), it created what is known as a shooting star candle. A shooting star candle is a candle with a small or doji body with a long top wick. Such candles usually occur alongside hangman candles after a rally and are heralds of a pullback. Bearish divergence also continued and all technicals continue to support my prediction of a retest of the 30MA.

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

Sunday, August 12, 2012

Week 3 August...

It was a largely sideways week last week as I have expected with the Dow finding lots of resistance around the 13,200 level. It was clear from last week's market action that there was plenty of profit taking out of the previous Friday's jobs report rally. I did say that I expect the Dow to revisit its 30MA before it has enough energy to stage a breakout of the 13,200 - 13,300 points area and I continue to hold that expectation. The series of dojis and the big hangman candle (a candle with a long bottom wick and a small body occurring around the top of rallies), tells me that the market is selling off on the strength and that chances of a short term retreat is in order. However, I continue to be of the opinion that the market is going to break into new highs as this classical reversal out of the intermediate correction continues, but, that process is definitely going to be a rough one as we have seen just before every major breakouts.

This is the third week of August and every third week of the month comes with a series of leading indications, all of which are potential market movers. In the current weak state the market is in, we can expect any negative surprise to start that short term retreat I mentioned above and every positive surprise to have minimal impact due to the predominantly profit taking sentiment in the market for now.

Wednesday, August 08, 2012

Dow Continues Bullishness

The Dow moved sideways today, gaining 7 points as buying dries up.

Its a fairly quiet day today as excitement surrounding the last few economic releases start to dry up. In fact, market opened in the red today but went back up to breakeven on bargain hunting. Investors are buying into weakness right now as bond yields continue to rise on the exodus from safety into risk. It has been a volatile few weeks as the Dow finds itself once again at the door steps of March/May high. Options traders continue to be mainly bullish, keeping total equities put call ratio way below 0.9 suggesting strong call options trading. Fundamentals in the US and Euro zone continues to be shaky and we can be sure that any good news will result in a surge and every bad news a dip, resulting in the continuation of this volatile bull trend. This is the time to have a longer perspective and invest for the longer term. The current volatility is only good for the most nimble traders.

The Dow looks set to revisit its 30MA from here onwards once again as I have expected. However, the current strength might have broken the serial bearish divergence that I mentioned last week. On the weekly chart, the Dow looks to be on a classic textbook recovery out of an intermediate correction. If this pattern holds, the Dow should break the March/May high. Odds now favor such a scenario on a successful 30MA retest.

For now, the Dow turns all out bull trend.

Sunday, August 05, 2012

Jobs Report Surprised...

The Dow gained 217 points last Friday as nonfarm payrolls surged despite unemployment rate inching up to 8.3%. Nonfarm payroll was a huge surprise last Friday, beating consensus of 100,000 and last month's revised number of 64,000 by a mile. As with all economic numbers, such sudden surges are never a good thing because it will almost always fail by a mile by the next release. Fundamentals in the market and in the global markets remain shaky and the market remains stuck in an extremely volatile condition. In fact, we would almost certainly see the Dow retreat and retest the 30MA this week as conservative investors take some profit off the table. Indeed, all single day rallies lead to a period of sideways or slightly negative trading. For now, the pattern of serial bearish divergence has not yet been broken and is still too strong a bearish signal to turn one's back to.

Wednesday, August 01, 2012

Dow Retreats on Poor ISM

The Dow retreated 37 points today following FOMC announcement and ISM Index.

As usual, investors traded cautiously prior to this afternoon's FOMC announcement even though there was nothing in it that was unexpected. Investors also sold off briefly as ISM index failed to beat expectations, turning in 49.8 vs consensus of 50.1, almost on par with last month's 49.7, as the manufacturing sector continues to decline. This is the first time ISM remained below 50, signifying contraction of the manufacturing sector, for two straight months since the recovery begun back in 2009. Investors held on in hope of a surprise announcement in the afternoon from the Feds but none came. This has thrown the market once again into a state of uncertainty and options traders echoed this uncertain by keeping the total equities put call ratio within the 0.9 to 1.1 range, which is typical of uncertain volatile market conditions. With the recent improvements in Jobless Claims, some investors may also be prepositioning for a better than consensus Jobs Report as bond yields rose across the board suggesting a move back into equities.

No surprise there today as the bearish divergences that I mentioned in my last post set the market once again into a downwards spiral. A revisit of the 30MA is now once again in the books with the market in still in short term overbought condition, downside potential is definitely way greater than upside potential.

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