Stock Market Analysis

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.

Fundamentals
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

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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