Stock Market Analysis

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.

Fundamentals
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.

Technicals
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.

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