Stock Market Analysis

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.


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