Stock Market Analysis

Wednesday, January 30, 2013

Start of Short Term Pullback...

US market went south today on far worse than expected GDP numbers with the Dow closing down by 44 points.

Investors and traders held off their selling on the worse than expected GDP to see if the FOMC announcement would introduce any positive surprises... which of course didn't happen. The Feds did what everyone knew they would to keep largely everything unchanged, as if the meeting never happened at all. Investors and traders resumed their GDP sell off for the rest of the day following the FOMC announcement. The VIX continue to rise on the higher volatility and options traders continued to keep total equities put call ratio above 0.9, signifying uncertainty.

All of these suggest that this might be the start of that overbought pullback that I have been talking about all week. Yes, without a good retreat back to the 30MA level, the Dow will continue to be in such an overbought position that it is hard for investors to buy into anymore. A good retreat will take the Dow off short term overbought condition and set up better entry points which encourages the kind of buying that would help this bull trend progress in a healthy manner.

For now, the Dow remains in all out bull trend.

Monday, January 28, 2013

Dow Begins Short Term Pullback?

Welcome back from the weekend!

US market opened enthusiastically today on the better than expected Durable Goods Orders but quickly came under pressure on the worse than expected Pending Home Sales data that took the Dow into the red for the rest of the day, closing down by 14 points. The Nasdaq composite made a slightly positive day today but its merely part of the month long sideways movement it has been in so far.

It is clear from the trading action today that the market is currently under tremendous overbought pressure. In fact, this is the first negative day the Dow made after 6 straight up days. The VIX continues to support a short term pullback with a second straight day up. Options traders echoed the uncertainty in the market by bring total equities put call ratio all the way up to 0.97 which represents no clear bias in terms of call or put options trading and is usually the case just before short term trend changes.

Indeed, the Dow is so short term overbought that it is currently hard to make any new highs without a pullback at least to its 30MA. Continuously trading in overbought condition only build up uncertainty and denies good entries that are essential to a healthy bull trend.

For now, the Dow remains in all out bull trend.

Thursday, January 24, 2013

Start of Pullback?

US market closed mixed today due to earnings despite better than expected economic data.

US market ended in an extremely split fashion today with the Dow closing up by 46 points and the Nasdaq composite closing down by 23 points. This was due largely to poor showing in earnings on the tech side and better than expected economic data. Both jobless claims and leading indicators turned in much better than expected which helped the broader market combat pressure from tech stocks. However, traders continue to be uncertain and cautious with the market trading largely with a sense of being over extended. Options traders continue to keep total equities put call ratio around 0.9, which is typical of an uncertain market. The VIX also turned in higher today in support of a short term move to downside. As a general leading indicator for the broader market, if the Nasdaq persists lower tomorrow, we could see the broader market go into that healthy short term pullback that we have been waiting for.

The Dow continues to move further into short term over bought territory today but we could actually see a short term pullback to perhaps the 30MA level start within the next few days. Most times when the VIX close opposite to the direction of the Dow, it leads the Dow into that direction for the short term. However, such a pullback is not a dangerous but a healthy one. Without a good pullback to set up better entry points, buying will dry up and the market will stall.

For now, the Dow remains in all out bull trend.

Tuesday, January 22, 2013

Dow Breaks Out!

Welcome back from the Martin Luther King Jr. long weekend!

The US market has been surprisingly bullish since last week, with the Dow heading for and breaking the 13,600 points resistance level without even looking back! Is such strength a good thing? Not necessarily. Without a good temporary pullback, the market continues to trade in short term overbought condition with a high chance of a temporary pullback which makes it extremely hard to find good entry points right now despite the bullishness.

To add to the problem, this bullishness came on the back of continued volatility on the economic data front. Today's existing home sales turned in far worse than expected but investors seem to have read it the other way, pushing the Dow all the way up by 65 points by the end of the day. I am still of the opinion that we are going to see a significant pullback soon, perhaps down to the 30MA line, before this market has enough energy to make any more new highs. Options traders also echoed this uncertainty today by pushing total equities put call ratio above 0.9.

For now, the Dow remains in all out bull trend.

Wednesday, January 16, 2013

Dow Slows Down...

Nothing much happened as the Dow continued bouncing around the 13,500 points level amidst uninspiring economic data.

Economic data is obviously going through yet another period of volatility right now. Like stocks, economic data moves in trends and has period of volatility as well. These periods of volatility usually give the background story for short term pullbacks within a bull trend, which is what we are looking at right now.

The market is short term overbought and needs a short retreat in order to muster enough energy to breakout of the 13,600 points resistance level and the economic numbers seem to be helping it do just that. In fact, with the market this overbought, we might not see any strong positive move even if tomorrow's economic data surprises to upside. In fact, I would expect to see some volatility in tomorrow's jobless claims, housing start or Philley Fed that will actually facilitate this retreat. Investors are already going back into longer term bonds for some safety ahead of tomorrow's numbers, depressing longer term bond yields slightly.

For now, the Dow remains in all out bull trend.

Monday, January 14, 2013

First Expiration Week of 2013

Welcome to the first options expiration week of 2013.

US market closed mixed today as weakness in the tech sector led by Apple met with the market being in short term overbought condition once again. The Dow closed marginally higher by 18 points despite early weakness while the Nasdaq100 closed lower by 8 points.

Apple is in an increasingly hard position as Android phones eat up iPhones market share at an accelerated pace. In fact, most of the people I know around me uses Android phones rather than iPhones lately. Apple losing market share will certainly have a significantly impact on Apple stock and the Nasdaq100 in general going forward.

That said, traders continue to be optimistic with their short term outlook as total equities put call ratio continue to trade below 0.9 in favor of call options trading. With the Dow coming up against a strong 13,600 points resistance level and with the market generally overbought right now, I would expect a short pullback perhaps back down to the 30MA level before the Dow has enough energy to stage a breakout.

For now, the Dow remains in all out bull trend.

Monday, January 07, 2013

Dow Continues Sideways...

No surprise today on this first full trading week of 2013 as the Dow retreats 50 points.

Rather than saying that its a negative day, I would actually call this a sideways day as the Dow merely traded sideways within the range set over the past few trading days. This is what I mean what I said the market is likely to trade sideways or slightly negative following huge single day rallies, so, no surprises there. In fact, we should still see a couple of days more of this sideways, slightly negative, movement before the Dow can muster enough energy to challenge the 13,600 points level. But challenge it the Dow will.

For now, the Dow remains in all out bull trend.

Wednesday, January 02, 2013

2013 Opens With a Bang!

Happy New Year 2013!! Here's wishing everyone a happy and prosperous year ahead!

US market kicked 2013 with a BANG today. The Dow gained a HUGE 308 points today, rebounding off the 30MA on developments on the Fiscal Cliff issue, EXACTLY how I've predicted it last week. Congress made a last minute deal on Tuesday which prevents the US economy from slipping into a recession due to tax hikes. This may come as a surprise to some but I've never any question about Congress being able to come to a solution due to the fact that no sane government will ever watch their economy go into recession after such a hard climb out of it and not do anything about it.

However, if you have followed my blog long enough, you know what I always say after such strong single day rallies. Yes, that we should expect a few sideways or slightly negative days due to short term profit taking. But this rebound has completed the reversal pattern out of the Oct 2012 correction and turned the intermediate trend back up to Bullish. As the saying goes, as January ends, so will the year; 2013 is looking good to be another positive year. 2012 also ended with the Dow up its 4th consecutive year by 7.2%.

For now, the Dow turns an all out bull trend.