Stock Market Analysis

Wednesday, March 27, 2013

Dow Continues Sideways Ahead of GDP

The Dow closed lower by 33 points today as investors took profit off yesterday's rally.

Major equities markets closed negative today ahead of US market opening due to Eurozone issues, leading to a deep negative opening. Bargain hunting set in almost immediately, taking the market off its low throughout the day and even closed the Nasdaq Composite positive. Investors and traders were obviously cautious also ahead of tomorrow's Jobless Claims and GDP, both of which are capable of moving the market. With this much profit in the pocket so far this year, the fear of a bad number definitely outweigh the desire for a good one. As such, bond yields were depressed across the board as investors rushed for the safety of bonds and options traders took the total equities put call ratio above 0.9 once again, suggesting uncertainty. In fact, major index futures are already pointing downwards right now as we speak. So, how will the final trading day ahead of Good Friday fare?

No surprise today as the Dow continued its largely sideways movement. It would be a pattern break if today was a strong positive day but it wasn't. Even though the Dow is now off short term overbought condition, it is still some distance from its 30MA. As such, chances are that tomorrow continues to be a sideways day or even a significant down day in order to draw in some distance to the 30MA. We should see one final, albeit short, leg up after this before an intermediate correction hits.

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

Monday, March 25, 2013

Dow Continues Sideways Despite Better Data...

The Dow closed 64 points lower today despite better than expected economic data in this first trading day of Easter week.

The past few US market sessions have been largely event driven by developments in the Eurozone. These developments caused great uncertainties in the way it will affect euro and world equities in general and have led the US market into a period of uncertainty despite better than expected forward looking economic data. Investors and traders are also seeking reasons to take temporary profit ahead of the Easter long weekend, leading to the willingness to sell that we saw today. Indeed, it has been a good run this year so far, as such, it is reasonable to expect traders and investors to take some short term profit in order to close this first quarter of the year on a beautiful note. Short term bond yields dropped a little indicating short term return to safety while options traders continue to keep total equities put call ratio around 0.9 in a more uncertain bid.

Even though it was a negative day today, the Dow merely closed within the sideways trading range it has been in the past 10 trading days or so. As such, its really more of a sideways day rather than an outright bearish day. This sentiment is reflected both in the bond yields not echoing a decidedly bearish drop and total equities put call ratio not making the kind of surge it does in a true bearish day.  With good forward looking data acting as support, the Dow would most probably continue to move largely sideways until its 30MA catches up with it before moving any higher, just like it did back in February. This short sideways trend is however enough for quick swing trading system such as my Star Trading System to make a take a quick profit. In fact, we just took a quick 17% profit off put options on HUM today. (Stay on the correction side of the market with my Master's Stock Options Picks Service now!) However, the Dow is now due a good intermediate correction before any upside can remain healthy. As such, even if the Dow does continue upwards after its 30MA catches up, it might still collapse quickly into an intermediate correction.

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

Monday, March 18, 2013

Intermediate Correction Coming?

The Dow closed lower by 43 points as investors turn their eyes on issues in the Eurozone once again.

Major global markets ended Monday in the red before US market opened today due to worries surrounding the Cyprus bailout. This led to a sharply negative US market opening which was compounded by a worse than expected Housing Market Index. Investors rushed back to the safety of bonds, depressing bond yields across the board, options traders kept total equities put call ratio above 0.9 in a vote for uncertainty and my Star Trading System gave us our first short term bearish trade of the year today. Expect the rest of the week to be more volatile due to the FOMC meeting.

The Cyprus issue was truly a good coincidence to kick start this short term pullback that I have predicted last week. No bull trends go straight up no matter how strong. It will always go into short term overbought condition and then pullback a little to take itself out of short term overbought condition and set up better entry points that pushes the market to new highs. However, we do need to be on the look out for the possibility of this pullback turning into an intermediate correction. The market is currently at the point where an intermediate correction does seem to be in order before the market can make anymore new highs. For now, a retest of the 30MA seem the most probable. The quality of that retest will tell us if this is going to turn into an intermediate correction rather than just a pullback.

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

Monday, March 11, 2013

Pending Pullback?

The Dow made its 7th straight gain today, closing higher by 50 points.

Investors and traders continue to push US market into new highs today following last Friday's much better than expected Jobs Report. Indeed, current economic data seems to be getting better and better inline with the economic recovery scenario. The longer term effects of the sequestration seems to be ignored by the market for now. However, it is also clear from the total equities put call ratio and bond yields that investors and traders has already slowed down on the bullish side significantly. This could lead to a little short term profit taking ahead of this Friday's quadruple witching day.

With the 7th straight up day and the Dow being in deep short term overbought condition, it would not be surprising to see the Dow go largely sideways or pullback slightly from here. Options traders has already begun moving back towards put options, pushing total equities put call ratio higher, investors has already stopped moving back into equities from bonds in a big way and trading volume has also dropped significantly. Indeed, even in a strong bullish trend such as this one, a slight pullback in order to digest such overbought sentiment need to happen in order to encourage more buying.

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

Thursday, March 07, 2013

Dow Powers Forward

US market continued to power forward with the Dow closing higher by yet another 33 points into uncharted territory.

US market continue to push new historical highs today with the Dow closing in at 14,329 points despite lackluster economic data. Economic data failed to impress today so most of the buying seems to be technical based as investors and traders jump in on the new high. Indeed, most people start buying only when new highs are made, which of course is very often too late. This is why my Star Trading System is designed to jump in early in a new trend or even slightly before a new trend. Bond yields continue to rise across the board as investors return to equities and options traders also started to keep total equities put call ratio below 0.9 in a decisive bullish vote for a second day in a row. Everything so far suggests that this bull trend is sustainable despite the sequestration.

The Dow pushes deeper into short term overbought territory today with no definitive sign of a pullback yet. In fact, the Dow is quite fond of trading in overbought territory for a week more than I expect after breaking significant resistance levels, before it go sideways or pullback slightly to digest some of those overbought sentiment. So far, it seems like this rally could still go on for a few days more before some short term profit taking set in.

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

Tuesday, March 05, 2013

Dow Makes New High

The Dow closed higher by 125 points today as the market continue to power forward despite the sequestration.

US market made a new high exactly as I have predicted last week with the Dow breaking above the 14,200 points level decisively. This came on the back of the much feared sequestration which puzzled many analysts. Why doesn't the sequestration have any effect on the market? This is because the market is still trading on the much better than expected ISM index that was recently released and that the market is releasing the energy pent up over the month long sideways volatile trend.

Yes, short term trends like this one has more to do with current issues and current technical sentiments than longer term effects like the sequestration. However, effects of such broadbased spending cut will be reflected in the market over time and I suspect it won't be long before it happens.

Investors continue to return to equities, lifting bond yields across the board in support of today's rally but options traders continue to keep total equities put call ratio above 1.1 in a decisive bearish vote. Such a split sentiment do cast a shadow on the current rally and I would exactly expect a few sideways or slightly negative days to follow as some of these short term traders sell according to their bearish sentiments.

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