Stock Market Analysis

Monday, September 10, 2012

Profit Taking Continues...

A volatile first day in the market with no major economic releases and plenty of profit taking like I predicted last week. Indeed, always expect a few days or sideways or slightly negative days to follow huge single day rallies. This week's FOMC announcement may contain some good news that will allow the Dow to break out of the sideways-slightly-negative-days into new highs especially with uncle Ben now under tremendous pressure and doubt. Even though it was a slightly negative close, investors are still seen moving slowly back into equities, raising bond yields slightly across the board. Options traders continue to reflect a decisive bullish sentiment, keeping total equities put call ratio below 0.8 in favor of call options trading. This is the kind of ratio you get in strong bull trends.

The current 13,300 points level is an extremely strong resistance level where the Dow failed at last month. Failing once again at this level would create a head and shoulders formation that can prove to be very nasty. However, looking at both the fundamentals and the technicals, chances still favor a bullish breakout this time round.

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

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