Stock Market Analysis

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.

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