Stock Market Analysis

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.

Fundamentals
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.

Technicals
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.

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