Stock Market Analysis

Thursday, December 27, 2012

Fiscal Cliff Looms

Welcome back from the Christmas Holidays!

US market took a hit today as investors rush for the safety of bonds ahead of the looming fiscal cliff.

The Dow took a hit today despite better than expected jobless claims and new home sales. US market opened slightly positive on the jobless claims data but took an immediate and powerful hit at 10am as Consumer Confidence turned in much poorer than expected ahead of the looming fiscal cliff. The so-called fiscal cliff is the expiration of the Bush-era favorable fiscal policies by the end of December. These policies include tax cuts and government spendings that, if reversed when the economy is so soft, could deal a death blow to a struggling economy. So far, the US government has yet to come up with a complete solution to this problem and with the New Year holiday coming up next, there seems to be no way investors can be greeted with a complete solution before the end of 2013. However, an afternoon announcement stating that the government will meet again on Sunday in order to try to arrive at a solution restored confidence to the market, resulting in a late day rally which took the market off its intraday low. This is an extremely complex situation and an unprecedented one in which there is no simple solution. The net effect on the stock market cannot be predicted with ease either. It is in times of such uncertainty that being able to flexibly trade to upside when times are bullish and trade to downside when times are bearish becomes of utmost importance in order to profit into the uncertain future. Such a trading system is of course my Star Trading System.

The Dow formed a huge hammer candlestick right at its 30MA today. Like I said before the Christmas holiday, the Dow could retest its 30MA before it recovers enough momentum to move upwards somemore and that was exactly what it did. A hammer candlestick, which is a candlestick with a small body and a long tail, occurring at an important area such as the 30MA always suggests a reversal starting right as soon as the very next day. This could correspond to favorable developments in the fiscal cliff issue over the next few days.

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

Monday, December 24, 2012

Merry Christmas!

Merry Christmas Everyone!

US market retreated like how I predicted it to before Christmas, no surprise there. So, please have a very Merry Christmas and lets see what the market has in store for us on Wednesday!

Monday, December 17, 2012

Santa Claus Pushes On...

The Dow gained a huge 100 points today despite worse than expected economic data.

Santa Claus Rally pushed on today despite worse than expected Empire State Index. Empire State Index, an index that measures manufacturing activities in the New York region, continued to show contraction for a fifth straight month, something which traditionally would have investors rush for bonds. However, investors continued to return to equities today despite the bad number, causing a surge in bond yields across the board. Clearly Santa Claus is ruling the market right now but with quadruple witching coming up this Friday, we may see some volatility over the next few days.

The rally today is a surprising and dangerous one. It kept the Dow in short term overbought condition despite a strong bearish divergence and yet failed to make any significant new highs. This could actually lead to a bit of selling into the strength over the next few days. However, the Santa Claus rally remains evidently strong and should carrying on through the new year.

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

Thursday, December 13, 2012

Dow Pulls Back As Expected...

The Dow pulled back today by 74 points as expected despite better than expected Jobless Claims data.

The better than expected jobless claims released before market opened led to an extremely short positive trading before all out profit taking took over for the rest of the day. Yes, it was a profit taking day as expected of an extremely short term overbought condition. Indeed, even Santa Claus rallies don't go straight up. Like I told paid subscribers yesterday, the Dow is expected to pull back and retest its 30MA these few days before it can muster enough energy to go any higher.

The short term bearish divergence on short term stochastics is still strong, supporting the retest of the 30MA scenario.

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

Tuesday, December 11, 2012

Santa Claus Rally Continues...

The Dow posted its 5th straight up day today despite mixed economic data.

Santa claus rally seems to be at its fully swing now as US market continues to power upwards despite largely mixed economic data. Sales data were mixed and trade gap widened. Definitely nothing to cheer about. However, that's what rallies, or multiples expansions, are all about. Rallies such as the Santa Claus rally ride on many sentimental and technical reasons that go beyond fundamentals. This is why such anomalies are consistent in most years regardless of economic data. Options traders kept total equities put call ratio below 0.9 in favor of call options trading and bond yields steepened as investors make more short term reallocation back into equities. Both indicators support today's move with no contradiction. The Feds will make their announcement tomorrow. Even though nothing new is to be expected, the market still is expected to trade cautiously in the morning prior to the release.

The market is once again threading in short term overbought territory and could use a little ease back before anymore upside is possible. Expect some short term profit taking over the next few days.

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

Sunday, December 09, 2012

Volatility Continues...

Welcome to a new week! This is the second week of December and FOMC is going to meet and make their new announcement this week on Wednesday. Even though it is unlikely that there is anything new they can do, every FOMC announcement still introduced plenty of volatility to the market based on their outlook on the economy.

The past few trading sessions has since mixed market with the Dow and the Nasdaq composite going in extremely different directions. This is an extremely rare market condition that happens under extremely uncertain economic conditions. On the one hand, we have the Dow breaking away from its 30MA, completing and confirming the reversal breakout and on the other hand, we have the Nasdaq composite still struggling against the gravity of its 30MA. Sentiments on the ground continues to be mixed and short term technical signals continue to generate more bearish than bullish signals.

In short, it is still going to be an uncertain week ahead but with the Dow already pulled away from the 30MA and the Nasdaq composite holding above its 30MA as well, inclinations now return to upside. Unless market take a significant hit this week.

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

Wednesday, December 05, 2012

Market Split In Indecision...

US market closed mixed today with the Dow gaining a significant 82 points and the Nasdaq dropping a significant 22 points.

US market has rarely been this undecided and split, ending in a mixed market with a significantly higher Dow and a significantly lower Nasdaq composite. Indeed, anyone watching in the intraday price action or actually trading in the exchange could see the huge disparity in outlook that has resulted in today's wildly mixed market. On the one hand, the fiscal cliff sent many investors back into the safety of bonds, depressing bond yields across the board. On the other hand, the recent improvements in economic data and the fact that the market has just ended an intermediate correction encourages traders to jump in on the weakness, causing a drop in total equities put call ratio in favor of call options trading. Both of these indicators echo the mixed sentiment in the market that should already be very obvious over the last few days. Indeed, the stock market and the US economy is going through yet another period that has no precedence and it is clear from the market action that investors really don't know what to do about it for sure. All these coupled with the Jobs Report coming up on Friday made this an extremely volatile week. This is the time when we should not be rattled by all the news and events but rather focus on what prices in the market are actually doing.

And this is where technicals come in. The gain in the Dow is an extremely important one today. This rebound took place exactly at the 30MA line, which is a significant breakout and a transformation from resistance level to support level. However, the Dow is still trading largely within the trading range established over the past week which makes this a very weak but still important support. The 13,100 line would be critical. A good breakout above that line would confirm the the turn around, leading to a volatile bull trend. At this point, the Dow could still go south and retest the 30MA.

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

Monday, December 03, 2012

Dow Down on Dismal ISM Index

Welcome back from the weekend and welcome to the first week of the final month of 2012!

US market took a bit of a setback today as ISM index turned in much worse than expected. However, what's interesting about today's trading action is that it isn't totally pessimistic. In fact, it is more of a very undecided, uncertain trading action. Buying sentiment was strong before the ISM index release and the dismal ISM index didn't cause as big a drop as one would have expected nor did it cause an exodus back to bonds. In fact, bond yields were slightly higher across the board indicating that investors are actually buying into this market. On the other hand, options traders, took total equities put call ratio above 1.1 in a bearish vote in favor of put options. This split opinion resulted in what is at best a sideways day for the Dow as it continued to trade along its 30MA. Looking at just the technicals, the reversal is still healthy and underway but an extended sideways volatile period might be expected before Santa Claus can roll.

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