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.

Fundamentals
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.

Technicals
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.

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