Stock Market Analysis

Monday, July 29, 2013

Dow Continues Sideways

The Dow closed down by 36 points today as economic data continues its volatility.

With global markets closing largely negative, the US market was also set up for a lower opening Monday morning. What little bargain hunting that took place after that was obliterated by a sell out after Pending Home Sales and Dallas Fed both turned in worse than expected. Investors were also rightfully cautious today in taking short term profit off the table as this first week of August is packed full of heavyweight economic data capable of relieving them of the profits that they have made over the past month. However, in contrast to an all out bearish day, the bargain hunting actually resulted in bond yields rising across the board and total equities put call ratio falling in favor of call options trading.

Today is largely a sideways day despite being the first significant down day for weeks. However, a negative day following last Friday's hangman candle (a candle occurring at the top of a trend with small body and long bottom shadow) is a cause for concern. The intermediate correction in May also started with a couple of hangman candles around the May peak. However, even if the Dow pulls back down from here, it is unlikely to complete a double top as double tops rarely happen after the second peak manages to close higher than the first peak like it did this time round. What is most likely to happen is for the Dow to test the 30MA and then rebound and resume the bull trend.

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

Thursday, July 25, 2013

Double Top Coming Up?

The Dow continued sideways today closing marginally higher by 13 points.

Economic data continues to be volatile today as jobless claims was higher than expected and Durable Goods Orders failed to please due to a sharp increase due solely to Boeing's aircraft orders. The Dow opened downwards sharply but found some bargain hunting towards mid day to close the day marginally higher. Even though it was a positive close, there were no strong bullish sentiment echoed in the bond  yields nor total equities put call ratio typical of truly bullish days.

It truly was nothing more than a sideways day in the market today. In fact, it looks more and more certain that the Dow is going to turn down strongly to meet and test its 30MA soon. If that happens, it would also form the dreaded intermediate double top formation. As such, this is time to be careful about bargain hunting.

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

Monday, July 22, 2013

Economic Data Volatility Period...

A sideways day in the market as economic data confirms its period of volatility following the past month's excellent performance.

Yes, economic data behaves exactly like stock prices do!

Even in a bullish economy, economic data will perform well for a while and then enter a period of uncertainty and volatility before moving on to new highs. Vice versa in a bearish economy. This ebb and flow of economic data also correlates to the ebbs and flows of the stock market. Understanding this fact should tell you that you should hold through periods of economic data volatility in a recovering economy rather than go into panic mode and sell on each bad news.

However, other people are still going to be selling into each bad news due to short term profit taking or whatever their reasons may be... that's when you should be accumulating. Yes, the Dow's still going to have to revisit its 30MA before it can confirm the resuming of this bull trend. That's when you should be accumulating.

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

Monday, July 15, 2013

Exhaustion Peak + Double Top?

The Dow slows its advance as it gains 19 points today despite a much better than expected showing on the Empire State Index.

The past two weeks has been extremely crazy weeks with the US market suddenly caught in the hysteria of better than expected economic data and surging straight up. Indeed, US economic data has turned in surprisingly strong this month so far but what's even more surprising is the willingness of investors and traders to buy straight into the better numbers in the middle of an intermediate correction. Does this mean the end of the intermediate correction?

Not really.

This steep and strong climb not only made it hard to find good entry points but also resulted in two nasty technical patterns; A Exhaustion Peak and a Double Top. An exhaustion peak is when there is sudden and sharp buying resulting in an extremely steep climb which eventually results in the drying up of buying interest and a subsequent sharp drop back to the mean. Such exhaustion peaks usually tee off near significant resistance levels and in the case of the Dow, it is the May high. Failing at this level forms an even nastier formation... an intermediate double top. Double tops are extremely powerful bearish formations and once completed at this level, can see the Dow go down to 14,000 or lower. The VIX turning higher today despite a positive day also suggest a turning around downwards as volatility recovers from its recent crunch.
(Read more about Volatility Crunch)

With the way retail sales slumped this month, economic data going forward might look a bit shaky as it enters yet another period of volatility. All in all, this is when I will be very careful about short term bets to upside.

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

Tuesday, July 02, 2013

Intermediate Correction Still Got Legs?

The Dow closed lower by 42 points today despite better than expected economic data.

Fundamental data has been roaring good lately, leading to the recent market pull up. Both sales data and Factory orders continue to turn in better than expected today leading to an early rally. However, profit taking quickly set in afternoon to take the market back into the red. In fact, some profit taking was already evident in the morning as the market opened in the red as well. Indeed, after quick runs like this, investors and traders would be looking to take some short term profit off the table. This short term profit taking sentiment is echoed in the slightly lower bond yields across most maturities and the total equities put call ratio going above par in favor of put options trading once again. Does this mean that all the good economic data are going to waste? Definitely not, the market is still in global recovery mode and good economic data always transforms into good stock market results... the only question is, "When", which is when we look at the technicals.

Despite the spate of good news on the economic data front, technical behaviors such as an intermediate correction still has to run its course before all that confidence built up by such data can transform into an all out optimistic buying sentiment. The recent run upwards is merely a normal "dead cat bounce" within an intermediate correction and has proven itself to be so by its stoppage at around the 30MA. From here, the Dow should make one more significant down leg to around 14,200, like I mentioned the last time, before this intermediate correction can bottom out and turn around on all the good economic data for new highs. Indeed, without a significant correction like this, investors would always be buying with a sense of foreboding and always holding back which would not be good enough to drive the market to new highs. This is why I always say intermediate corrections are actually a good thing.

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For now, the Dow turns a short and intermediate bear trend within a primary bull trend.