Stock Market Analysis

Wednesday, November 14, 2012

Dow Down on Retail Sales...

The Dow slided 185 points today on worse than expected retail sales.

Fundamentals
US market opened slightly positive only to succumb almost immediately to a sell off on the worse than expected retail sales, probably due to Hurricane Sandy (most people think the pre-Sandy buying rush ought to actually increase retail sales for the month as people stock up more than usual). The market took another steep hit right after the FOMC minutes release at 2pm as the Feds displayed nothing but helplessness in the face of the current situation.What's interesting about today's big drop is that it is not accompanied by the big drop in bond yields that we expect to see in a really bearish day as investors rush back to bonds. Interestingly, bond yields remained almost the same, suggesting that investors may not be as bearish as it looks and that today's drop might be the result of the final bearish herd waiting to be slaughtered. The huge surge in total equities put call ratio from 0.8s to 1.1s also indicate that the move might be excessive and that we should see some accumulation over the next couple of days.

Technicals
The Dow continued its journey towards the 12,500 points final support level as expected. The closer it gets to that level, the more dangerous it becomes to putting on new bearish trades. I would definitely be taking this opportunity to find good selling points for my bearish trades and good entry points for new bullish trades. In fact, we just took over 70% profit on FL's put options recently (check out my stock options picks service!) Indeed, I do not think that the market is decaying back into a primary bear trend and that this is merely a classic intermediate correction within the framework of a new primary bull trend coming out of the 2008 crash (which is a real primary bear trend). I won't be surprised to already see strong indication of bargain hunting over the rest of the week.

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

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