Stock Market Analysis

Monday, August 20, 2012

Dow Sideways on Economic Activities Contraction

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

Fundamentals
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.

Technicals
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.

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