Stock Market Analysis

Wednesday, October 31, 2012

First Post-Sandy Trading Not So "Sandy"

The first day of post-Sandy trading went without a hitch with surprisingly healthy volume in volatile intraday trading that closed flat. The Dow closed merely 10 points lower by the end of the day.

The east coast begins its first day of fighting against the disaster left behind by Hurricane Sandy today with large areas still out of power and people busy volunteering for post-disaster aid. As such, it isn't unusual to see that today's market being a rather uncommitted one. We also saw investors rushing back into equities today, depressing bond yields across the board even though the market didn't go deep into the red post-disaster like some people have predicted.

The Dow is also a mere 100 points from its expected support level of about 12,900 for this intermediate correction. As such, there is actually more upside potential than downside potential and every weakness should be an opportunity to preposition for the resuming of the bull trend.

We continue to wish residents of the east coast well and wish them strength in rebuilding their homes.

Tuesday, October 30, 2012

Market Closes Second Day In a Row...

US market continues to be closed today due to hurricane Sandy. This is truly an unprecedented disaster and throughout my trading career, the US market has never closed two days in a row without public holiday. US market will resume trading on Wednesday but liquidity is expected to be thin as large parts of Manhattan are still without power and evacuation is still in progress. This might result in huge intraday swings as the East Coast begins post-disaster rebuilding and rescue operations so if you must trade on Wednesday, make sure you use limit orders instead of market orders.

Lets continue to keep those in the wake of hurricane Sandy in our prayers.

Monday, October 29, 2012

US Market Closed For Hurricane...

US market was closed today as Hurricane Sandy makes landfall and will continue to be closed on Tuesday as well.

It was indeed a brilliant decision to close the stock market these two days as it not only ensured the safety of the people working at the exchanges but it also prevented an unnecessary stock market hit. Indeed, there is no doubt that if US market is open these two days, we shall see a huge drop due to the unprecedented crisis and uncertain outcome.

We continue to pray for those living in the path of the hurricane.

Wednesday, October 24, 2012

More Selling Into Strength...

The Dow closed slightly lower today by 25 points as investors continue to sell into every bit of strength.

Market opened strongly today on bargain hunting and was met with a sell off almost immediately. The market then found some strength from the better than expected housing data at 10am but soon succumbs to more selling into the strength throughout the day. Basically, traders are telling us by their actions that they are going to sell into every bit of strength in order to return to bonds in the face of this intermediate correction and no amount of good economic data or earnings is going to change that, for now. With investors expecting a higher GDP reading this Friday, which can of course lead to an easy disappointment and more sell-off, I expect investors to trade cautiously tomorrow, leading to a uncommitted day.

 As I told paid subscribers yesterday, it is not unusual to see a few relatively sideways day following Tuesday's big down day. The fact that the Dow formed an inverted hammer candle today also reinforced the fact that this is one of those few sideways days before yet another leg down. However, I will be cautious to downside as the Dow nears the 13,000 points psychological support level.

For now, the Dow remains in short term bear trend within an intermediate neutral trend and primary bull trend.

Monday, October 22, 2012

Intermediate Correction Begins...

The Dow moved sideways today, gaining by 2 points as the intermediate correction goes underway.

The Dow took a huge hit last Friday after my comments about the market going to form a triple top last Thursday. This completed a declining triple top formation, which puts the odds strongly in favor of it being the start of that intermediate correction that I have been talking about for so long. However, last Friday's drop is so strong that it isn't unusual to see a bit of bargain hunting aka buying into weakness leading to a few sideways or slightly upwards day like today. However, such "strength" should be taken advantage of to exit any profitable longs for now.

Bond yields rose across the board as investors bought into the weakness while options traders continue to reflect a more uncertain sentiment as they keep total equities put call ratio above 0.9 but below 1.1 (read how I use Put Call Ratio for analysis).

Immediate support for this intermediate correction will be around the 13,000 points level. I continue to maintain that this is going to be a hard and fast correction that will not lead into an all out bear trend and that the 13,000 points level would be a perfect place for accumulation.

Wednesday, October 17, 2012

Bulls Buy Into Weakness on Housing Data

The Dow moved sideways today, gaining marginally by 2 points, rescued by much better than expected housing data.

Housing starts hit a 4 year high today suggesting continued recovery in the housing sector. Recovery in the housing sector is extremely important in the overall economic recovery scenario and has encouraged the bulls to take the market back up to par from a negative opening. There were some profit taking in the afternoon but the bulls are strong enough to buy into the weakness, which is definitely encouraging. However, lets not forget that the market is still overdue a good intermediate correction so chances of this rally making a significant new high can be low. Bond yields surged across the board as investors rushed back into equities on the housing data, offsetting the early profit taking. Options traders also kept total equities put call ratio below 0.9 for a third day in a row, confirming the current bullish sentiment... for now.

The Dow continued the March - May pattern today as I have expected. A little bit of sideways movement is definitely to be expected after the good two day rally it just had. However, the market still looks set to make that triple top before the intermediate correction so it is not time yet to be overly committed to upside.

For now, the Dow turns an all out bull trend.

Monday, October 15, 2012

Bulls Beats Bears

The Dow gained 95 points today on better than expected economic data.

US market pointed towards a higher opening after this morning's retail sales and empire state index. Retail sales beat consensus by a mile by turning in up 1.1% versus consensus of 0.7%. Even though profit taking set in almost immediately after opening, Business Inventories released at 10am which suggested stable conditions, helped the bulls overrun the bears, lifting the market throughout the day. Total equities put call ratio hit the lowest level in a month as call options trading returns in force reinforcing and confirming the bullishness today. Bond yields also gained slightly as some investors start returning to equities. Thursday will see leading indicators and Friday's October options expiration, as such, we should expect some volatility and big moves coming up (see stock market calendar).

The Dow turned around today as it finds some strength around the 13,300 points area, which was the high made in August. This is a very critical junction which will decide if this correction will go down further into the intermediate correction I said this is or that it will rebound from here in a classic continuation pattern. This decision will be made by what the Dow does in the next couple of days now that it is up against its 30MA from the bottom. This is an extremely dangerous place to be in failing which we would see the Dow go down as low as 13,000 points. With the amount of buying we have witnessed over the past two days, there is now a good chance the Dow is going to postpone this intermediate correction despite the overpowering double top formation with bearish divergence if the strength continues tomorrow and allow the Dow to get above its 30MA significantly. I also suspect we could get a repeat of the March 2012 to May 2012 pattern where a similar double top formation led to a short rally followed by an intermediate correction. This could be the start of that short rally before the intermediate correction comes.

For now, the Dow remains in short term bear trend, intermediate bull trend and primary bull trend.

Wednesday, October 10, 2012

Intermediate Correction Confirmed

The Dow gave in to the intermediate correction that I have been predicting over the past weeks, dropping 128 points.

US market continued to sell off today as more investors give in to profit taking. In fact, investors have been selling into every bit of strength over the past week or so and was especially obvious when last Friday's surprisingly positive jobs report failed to stir any real buying. This afternoon's relatively upbeat Beige Book report also failed to encourage any buying. Bond yields dropped across the board as investors rush for the safety of bonds and options traders kept total equities put call ratio at par of 1.0, indicating a strong sense of uncertainty. However, it seems like options traders are not taking total equities put call ratio higher than 1.1 as is typical of a strong bearish sentiment. It might seem from here that most traders are expecting this to be a short and quick correction rather than the start of a new bear trend.

The overdue intermediate correction goes underway at last with the Dow punching right through its 30MA today, confirming the intermediate correction. Immediate support seems to be around the 13,200 points area with no indications that this is going to be anything more than a short and sharp correction.

For now, the Dow turns short term bear trend within an intermediate and primary bull trend.

Monday, October 08, 2012

Secret Buying Into Weakness

As expected, the Dow continues to find plenty of resistance around the 13,600 points level and today's retreat at this level dramatically increases the chance that this may be the start of the intermediate correction I have been talking about last week. This is especially so due to the fact that the market see such resistance in the face of such an amazingly positive jobs report last Friday. All short term indicators support an increase in short term bearish momentum and puts puts the odds in favor of an intermediate correction scenario. However, there is a little spanner in the clockwork here... investors and traders seem to be secretly buying into today's weakness, causing a surge in bond yields across the board while options traders depressed total equities put call ratio in favor of call options buying... In fact, we did see the market open deep in the red and then lifted throughout the day. As such, this isn't the time to buy into the intermediate correction scenario yet until further evidence.

Wednesday, October 03, 2012

Dow Gains on ADP Data

Dow gains 12 points on better than expected ADP employment data.

US market opened on an optimistic note today as the ADP employment data cast an optimistic light on this Friday's Grandfather-of-all-economic-data Jobs Report. Analysts are expecting a rise in non-farm payroll this time round and such positive expectations is what leads very easily to disappointment. This is because investors do get disappointed even if non-farm payroll rises but not by more than what is expected (G-R-E-E-D!). So far, there has been obvious uncertainty in the market surrounding the outcome of the coming report. Plenty of short term profit taking and selling into strength. However, it is also under the background of such uncertainty would a positive surprise cause a rally like it did last month. However, there were clear buying into weaknesses ahead of the report while there are actually clear selling into strength... does insiders already know something of the outcome of the report?

The Dow has been moving largely sideways so far with plenty of resistance. The S&P500 has been moving upwards slowly again with plenty of resistance. Short term bullish momentum is still evident and rising but with the amount of resistance that we are witnessing now, the 13,600 points level could be where the Dow forms a double top that leads into the intermediate correction that I have been talking about.

For now, the Dow remains in short term neutral trend within an intermediate and primary bull trend.

Monday, October 01, 2012

Dow Gains on Better ISM Index

The Dow gained 77 points today as ISM index beats expectations.

ISM index turned in much better than expected today, turning in 51.5 vs consensus of 49.7 and prior month's reading of 49.6. This led to an immediate surge in the market following the release. What made this positive surprise even more powerful is that fact that this is the first higher month after 4 consecutive contraction months from May to August. However, the bulls were greeted almost immediately by profit takers that sold off on the news, taking the Dow and S&P500 off their highs and the Nasdaq Composite gradually lower throughout the day until it closed the day negative. Longer term bonds yields were depressed slightly as some investors returned to the safety of bonds and options traders took total equities put call ratio below the uncertain 0.9 range once again. However, total equities put call ratio has been bobbing around the 0.9 area enough recently to still suggest a lot of uncertainty right now. This is the first week of October and a week full of heavyweight economic numbers as well. With the amount of profit taking we saw today, we probably need to see all the economic numbers surprise strongly to upside before this market can be convinced to make new highs.

The Dow continued its rebound today with rising short term bullish momentum despite the obvious profit taking and resistance. Interestingly, the resistance set in when the Dow hit the 13,600 points level intraday. That was the level the Dow just pulled back from and it seems like it has made itself the next short term resistance level albeit not expected to be an extremely strong one. The rebound pattern is still healthy with the Dow still a mile away from being short term overbought. This pattern continues to favor the odds to upside. However, no bull trends run up like this all the way. The market could be due a significant intermediate correction once again before it can have the energy to go very much higher. This could also explain the shorter run up to 13,600 points in September and today's profit taking on positive economic data.

For now, the Dow remains in short term neutral trend within an intermediate and primary bull trend.