Stock Market Analysis

Wednesday, April 03, 2013

Fake Out Ends...

The Dow closed down by a huge 111 points as ADP employment predicts bad numbers of this Friday's Jobs Report.

Fundamentals
Early continuation of yesterday's strength quickly dissipated as realization of a probable poorer than expected showing in this Friday's Jobs Report sets in. ADP employment report turned in much worse than expected at 158,000 vs consensus of 205,000, sending a strong negative signal on a possible upset for this Friday's grandfather of all economic reports; The Jobs Report.  Investors rushed for the safety of bonds, depressing bond yields across the board significantly as options traders pushed total equities put call ratio above par in a bearish vote favoring put options. It was a decidedly negative day as investors took the opportunity to sell off following yesterday's herd buying. Economic data also seem to be entering yet another period of volatility following the stream of good numbers over the past month. This period of volatility do coincide nicely with the now widely speculated intermediate correction.

Technicals
The Dow took back all of the gains of yesterday's fake out, and more, completing a strong bearish divergence that has all the looks of the start of an intermediate correction. Indeed, I have been expecting the market to go into a healthy intermediate correction since last week as investors and traders take short term profit off an already impressive quarter. Such intermediate corrects sets up better entry points that encourages new buying that will take the market to new heights. The last intermediate correction happened back in October of 2012, taking the Dow from 13,600 to 12,500 before new buying returned to push the market into the new highs we see today. As such, intermediate corrections should not be viewed in too much of a negative light.

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

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