Stock Market Analysis

Monday, October 15, 2012

Bulls Beats Bears

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

Fundamentals
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).

Technicals
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.

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