Stock Market Analysis

Wednesday, August 01, 2012

Dow Retreats on Poor ISM

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

Fundamentals
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.

Technicals
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.

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