Stock Market Analysis

Monday, February 29, 2016

How Did Feb Do and What Might Mar Do?

Welcome to Leap day, the 29th of February, the final day of the second month of 2016! January ended badly, setting a bearish overtone to the market and February marginally deescalated that bearish overtone by closing just 0.4% lower compared with January's -8%. February has been a congestion month with the market stuck within a price channel that started actually in January. However, such price channels don't usually last very long and we should see a directional resolution in March.

This is the first week of March 2016 and the first week of every month are heavyweight weeks ushering in a slew of heavyweight economic numbers. Tuesday's ISM Index and Friday's Jobs Reports are the two biggest numbers of the week. With the stock market turning negative for a second consecutive day today, the market is once again at an intermediate decision making junction. How will these numbers affect that decision making?

The consensus for both reports are expecting them to turn out better than expected this week. In fact, non-farm payroll is expected to make a huge leap upwards, which is a very dangerous call at this time when economic data tends to fail expectations. Missing such lofty expectations usually sets the short term momentum downwards. Looking at how today's economic numbers continued to turn in worse than expected, including the all essential housing ones, this week could end up quite badly. In fact, investors and traders who has profited from the pull up so far bailed out today strongly ahead of tomorrow's ISM index. This again suggests a lack in confidence in how these numbers might turn out. In fact, today's trading volume is the kind of trading volume I usually pick up at significant reversal points. This, combined with the upcoming numbers, could mark the start of another leg downwards. Bond yields were down as investors seek safety over risk, total equities put call ratio is neatly in favor of put options trading. Today was a truly bearish day.

On the other hand, what I didn't like about today is that it was TOO bearish. You guys know my stand on this, when something is too much in the stock market, I usually take it to suggest the other way. As such, even though I now think the market is strongly inclined downwards at this moment, just for tomorrow, we might actually see a small positive day, so don't be surprised.

Market Crash Timer: RED

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

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