Stock Market Analysis

Monday, February 25, 2013

Off To a Bad Start...

US market opened to a bad start on Monday with the Dow dropping over 200 points in a single day, its biggest single day drop in months.

What started out as a slightly positive opening quickly gave way as economic data continued to pour in worse than expected. Both Dallas and Chicago Fed turned in worse than expected and with the Sequestration around the corner, investors and traders ran straight for safety with nothing positive to lean on.

VIX surged skyhigh as options volatility surged skyhigh, total equities put call ratio also surged above 1.1 and bond yields collasped across the board as investors rushed back to the safey of bonds.

All of these tell me once again that today's pullback might be overdone once again. Everytime all of these indicators go all crazy in a single day, particularly around the 30MA, its usually a fake-out. However, we will let tomorrow's market tell us that. If it follows up strongly tomorrow and close significantly lower than the 30MA, then we could be witnessing the start of a retreat all the way down to the 50MA. However, odds still favor a turn around into new highs rather than a full scale retreat from this level.

For now, the Dow remains in short term neutral trend within an intermediate and primary bull trend.

Thursday, February 21, 2013

Dow Continues Down to 30MA

The Dow retreated 46 points today as economic data turned in worse than expected.

US market retreated a second straight day today as economic data continues to worsen. All of the heavyweight economic data today turned in dismal; from Jobless Claims to Philley Fed and Leading Indicators. The slightly better than expected existing home sales did nothing to offset the negativity set by these heavyweight indicators. Investors continued their rush for safety today, depressing bond yields across the board as options traders continue to keep total equities put call ratio above 1.1 in a decisive bearish vote. Could this be the start of that significant pullback everyone's been speculating?

As I mentioned to paid subscribers yesterday, whenever total equities put call ratio and the VIX surge the way they did, the market's probably going to turn around upwards again soon. In fact, from the way the Dow rebounded intraday off its 30MA and how it is no longer in short term overbought condition, this could be where the Dow continue its journey upwards. Yes, odds now do favor to upside rather than the "catastrophic decline" that so many experts are speculating on. That odd will tip in favor of the bears only if the Dow close below its 30MA on Friday.

For now, the Dow remains in short term neutral trend within an intermediate and primary bull trend.

Tuesday, February 19, 2013

Welcome Back From The Long Weekend!

Welcome back from the long weekend!

With the President Day long weekend and Chinese new year behind us now, the US market is now ready to carry on with business as usual at last. As we come to the close of this earnings season, we continue to see the US market trade in a fashion that defies fundamentals. The Dow closed higher by 53 points despite worse than expected housing market index even though the iShares Dow Jones US Home Construction ETF closed significantly lower.

Indeed, the US market has displayed incredible resilience against the recent worse than expected economic data and continues to persist higher despite a general sense of being short term overbought. Truly, as the old saying goes, the market can remain irrational for longer than you can remain liquid. This market condition has made it extremely tricky to enter into short term trades of either direction, which is why my Star Trading System has opted to stay on the sideways through this period of time.

The heavyweight economic data this week would be the leading indicators on Thursday along with the jobless claims. 

For now, the Dow remains in short term neutral trend within an intermediate and primary bull trend.

Monday, February 11, 2013

First Trading Day of the Year of the Snake...

Gong Xi Fa Chai! A Very Happy and Prosperous Year of the Snake to everyone!

We bid the Chinese year of the Dragon farewell last weekend and ushered in the year of the Snake. According to traditional Chinese astrology, this year of the Snake is going to be one of mixed fortune (which year isn't? LOL!) so here's wishing all of you stay on the correct side of the fortune!

US market was completely unimpressive this first trading day of the year of the snake. The Dow closed down marginally by 21 points as it continues to move sideways, struggling against the grossly short term overbought condition. Indeed, the US market has been trying to push this short term overbought market condition a little bit too hard, resulting in a market that is going nowhere. Stocks move in waves. Everytime the market gets into short term overbought condition, a slightly pullback is necessary to digest that overbought condition, setting up better entry points which encourages more buying and a healthy new high. That is what is missing here. This might also be why so many experts are predicting a significant correction from here. Indeed, the longer you put off a pullback, the harder it will be when it comes. This is time to be extremely cautious.

Monday, February 04, 2013

Pullback Begins... For Real

US market traded deeply in the red today with the Dow closing down by 129 points as reality of worsening economic data sets in.

US market has bucked the worse than expected streak of economic data (esp the worse than expected GDP and Jobs Report) the past week, remaining in grossly overbought condition, making it nearly impossible to spot good bullish entry points. However, reality sets in at last today as investors rushed out of equities back for the safety of bonds as I have predicted last week. This exodus is exactly what made spotting good bullish trades the past week so difficult; would you go bullish when you know the market is going to tank?

Adding fuel to the already negative opening was Factory Orders turning in worse than expected. Like I always said, economic data is like stock prices; they never go up in a straight line. Even in an economic recovery, economic data move in waves, improving for a few months and then pullback some before improving some more. I believe this is one of those short term volatile phases which we have seen so many times before. This outlook ties in nicely with my technical analysis conclusion that this is a short term pullback to the 30MA before the market can gather enough strength to move higher. So, how can you profit through options on such a "Moderate Bearish" outlook? Read my free tutorial on the Six Directional Outlooks in Options Trading.

For now, the Dow turns a short term neutral trend within an intermediate and primary bull trend.