Stock Market Analysis

Wednesday, September 12, 2012

Dow Stages Mini-Breakout...

The Dow staged a mini-breakout today, closing higher by 9 points ahead of tomorrow's FOMC announcement.

Fundamentals
A lot of optimism in the market these couple of days indeed. Like I said last week, investors seem to know that Uncle Ben's going to do something positively surprising in tomorrow's FOMC announcement and has been buying into every bit of weakness so far. In fact, it is not rocket science to predict that Uncle Ben, being under pressure from the media over his lack of action and under pressure from the current Presidential campaign, might come up with some candies to sweeten up the economy a little bit even if it is against his own will. It is these "candies" that investors have been prepositioning for over the past two days. Bond yields surged across the board in response to the exodus from bonds back into equities and options traders continue to keep total equities put call ratio below 0.8, the kind of pattern we get in strong bull markets. With economic numbers also looking better over the past few days, there is little doubt that there is now more upside pressure than downside pressure in the market.

Technicals
The Dow seems to have ended the few sideways days that always follow big single day rallies and made a small breakout of the powerful 13,300 points resistance level today. In fact, it did so with a higher high and a higher low, which again is an extremely bullish sign. However, the problem is that this "breakout" is so insignificant that it cannot be considered a true breakout at all. Ideally, a breakout should be one strong candle on powerful volume, suggesting a complete psychological breakout. However, that was not the case today. Even though it made a higher intraday high than the May high which set the 13,300 points resistance level, it is still under its gravity as is clear from the way the Dow closed much lower by the end of the day. However, fact remains that now, a topside breakout still stands as a higher probability than failing once again at this level.

For now, the Dow remains in all out bull trend.

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