Why was the Dow up When Jobless Claims were up?

Yes, the Dow was up 46 points today and the Nasdaq composite up 25 points on a day where jobless claims were higher than last week. What happened?

Bullish stocks do not go up in a smooth slope neither do bearish stocks go down in a smooth slope. This is the same with almost everything that can be charted in the stock market. Jobless claims chart looks very much like a stock chart with short term and intermediate term retreats within every bull or bear trend. What the Jobless Claims number did today was one of those very healthy pullup within a new bear trend. This is because it is lower than the jobless claims number 2 weeks ago, forming a lower low (last week) and a lower high (this week). This is an extremely healthy pattern which should promote some investment confidence. Of course, things would have been VERY different if the jobless claims number today was higher than 2 weeks ago.

The Nasdaq composite also rebounded from its 30DMA today, forming a classic short term pullback within an intermediate bull trend. This is the kind we saw back in the pre 2007 bull trend. Very healthy and will continue the bull trend if followed up tomorrow.

Tomorrow is May equities options expiration day (see stock market calendar) along with the Empire State Index and would be a slightly volatile day. How the market close tomorrow would be important to the readiness which the Dow would reach the 9000 points level.

Nasdaq Takes a Beating...

What was just a normal down day within a short term bull trend for the Dow was a beating for the Nasdaq today. The Nasdaq composite dived right for its 30DMA today, down by 3% while the Dow was down only 2.18%. 2.18% and 3% may not sound very different as numbers but if you look at the charts, you will see a big difference. That is of course the best thing about charts; they put numbers into perspective and context.

The Nasdaq composite is right on its 30 days moving average today and if it breaks below that line, it will end its short term bull trend officially. Such a failure around its 200 days moving average does signal the possible start of an intermediate pullback, the one we have been talking about over the past couple of weeks, if the 30DMA is broken. There was only 5 winning stocks in the Nasdaq composite today with APOL gaining 1.99% but correcting back down by over 2% after hours.

All of these coincided with the lower than expected retail sales number today (see stock market calendar). Yes, don't expect consumption to increase when jobs hadn't. This could go on for sometime.

Battle of the Bulls and Bears...

The US market was mixed today with the Dow closing up by 50 points as the epic battle between the bulls and the bears continued...

We have seen this battle between the profit takers and investors jumping in on all the economic recovery news since Monday. The profit takers would take the market lower during the first half of the day and then buy back by the second half. Market was also under some pressure due to the rise of crude oil prices on the drop in the dollar. My economic recovery prediction earlier this year really look like its coming to be and with that, we could expect all the same old stories of the past to come back to haunt us again soon, only this time, stronger; weakening dollar, inflation, high oil... etc...

For now, the market continue to be resilient and the Dow continue to muster energy for a break towards the 9000 resistance level, which is going to be a strong one. That was the band within which the Dow was caught for several months not so long ago and this time, the 200DMA joined in the fray. 200 days simple moving average has a long history of being a strong resistance/support level for both the market and individual stocks. In fact, the 200DMA has provided support for the 2005 - 2007 primary bull trend and has acted as resistance for this market crash in May 2008 as the Dow collapsed right after failing to breakout. Only thing is, this time, the Dow does look like it has a fighting chance and a significant breakout and holding above the 200DMA may signifying a reversal. However, I do not think that the breakout will be like hot knife through butter and I do expect a significant pullback before a breakout. However, these are only my predictions and opinions based on technical cycles which may not play out exactly by the book. I usually take the cue on actual breakouts rather than predictions. I believe that the stock market isn't a place for soothsayers.

Investors will be watching out for tomorrow's retail sales (see stock market calendar) with consensus expecting a positive number of 0.1% up from last week's -1.1%. The weekly retail sales is an extremely volatile number which can go between positive and negative all the time. This is why analysts prefer to look at its yearly trend instead. If the retail sales number come up stronger tomorrow, it will turn the yearly trend line around, completing a reversal pattern, which is extremely significant.

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

Inflation Data Week...

Every week follow jobs report week is inflation data week when the PPI and CPI are released (see stock market calendar). Inflation week used to be pretty volatile and scary before the crash begun but it has faded into the background lately. Yes, nobody's worried about inflation in a recession, but, this will definitely be the main worry once we get out of this recession.

The Dow broke out of its 30WMA decisively last week, gaining a total of 164 points. In fact, this is the first time the Dow has broken significantly above its 30WMA since May 2008 when the crisis begun going into full throttle. This is definitely a significant event, suggesting a change in nature. The next challenge would be the 9000 points level where its 200DMA is. Again, I do not think its going to go past the 200DMA like it doesn't exist. 200DMAs are extremely strong and important resistance/support levels that is going to draw a lot of buying and selling. For now, I don't see any problem for the Dow to go straight for the 9000 points level. The Dow remains in short term and intermediate term bull trend within a primary bear trend.

Banks still in trouble...

Today, despite very healthy jobless claims numbers, the Dow surrendered yesterday's gains by retreating over 100 points after the US government released a report stating that 10 out of 19 banks are still in trouble.

Even though the economy is clearly bottoming out, most banks are still suffering from the mess that they got themselves into. Indeed, some entities can get too big to fail. Banks do need to recover from losses but through their own business activities and not from taxpayer's pockets! Ok, enough politics from me. Jobless claims beat expectations today, bringing its 4 weeks moving average down a 3rd week in a row. This is the first time new jobless claims have retreated so much in this crisis so far. Indeed, this is sure sign that the economic crisis has past its worst. So why is the market still down today? There is a combination of reasons and the most significant I can see is the bank stress test and profit taking ahead of tomorrow's Jobs Report (see stock market calendar).

In the technical sense, Dow's retreat today isn't as much of a retreat as it is for the NASDAQ Composite. The Dow merely continued going sideways but the NASDAQ composite did a significant down day that could turn nasty if followed up tomorrow. So far, such big down days have been false alarms which did not follow up the next day, however, this same thing happening right on the 200DMA does make it look dangerous. We will monitor how the NASDAQ composite behave tomorrow. If it follows up to downside tomorrow, near term support would be the 1600 points level. For now, the Dow continues to be in a short term and intermediate term bull trend within a primary bear trend.

A Bullish Down Day...

The Dow fought a rough battle against the bears today to end the day down marginally by 16 points.

Even though the Dow was down today, it was actually an extremely bullish down day. In fact, this is a down day where the VIX actually ended lower as well. The VIX is a well known "panic indicator". The fact that the VIX ended lower on a down day suggests that this "down day" is more bullish than bearish. In fact, it is extremely common to see a few sideways days following each significant bullish or bearish days as traders consolidate a little before the trend continues.

The 8500 to 9000 region is yet another resistance level for the Dow. This was the congestion zone for the Dow from October last year to January this year. Again, a decisive break out of this zone is necessary for the intermediate bull trend to continue.

Upside Breakout!

The Dow resolved its short term neutral trend today with an upside breakout of over 214 points with strong volume. In fact, the S&P-500 also turned positive for 2009 today with a 29 points surge! Yes, the market can indeed stay irrational for longer than you can stay solvent.

All of these happened as more positive data was announced from the housing sector. Pending home sale index ( see stock market calendar ) turned in stronger today reinforcing the likelihood that the housing market has indeed reached bottom.

As I mentioned yesterday, the neutral trend so far might have digested the expected short term pullback and we may indeed be witnessing a reversal in the making.

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Roaring Bulls!

The Dow ended the week higher again last week as economic indicators continue to improve despite not beating analyst estimates. In fact, the gain in the ISM index last Friday was the biggest gain in this crisis so far, putting a 4th straight month of gain. ISM index is a big deal because of its correlation with Real GDP. With the numbers so far, we can also expect Real GDP to improve.

So, was all these why the Dow is still so strong? What about technicals? What about the pullback that all technicians are predicting (myself included)?

Yes, even though last week was a positive week for the Dow, we still see very strong resistance in the 8000 points zone, which is now correlated with the Dow's 30WMA. So far, the Dow has been doing nothing more than an short term neutral trend on a daily scale. Which means that it is now preparing for a breakout. The only question remains is the direction. One thing about pullback levels is that if the price chart remains in an extended neutral trend at pullback levels, the pullback itself could be digested by the neutral trend. After it has been completely digested, the previous trend (the bull trend in this case), could resume without the pullback. So far, it looks very likely. The Nasdaq composite is painting a very different picture though. It has been in a short and intermediate bull trend so far, without going into the neutral trend that the Dow and S&P500 has been. This makes it a dangerous candidate (QQQQ) as it now comes up against its 200DMA. The Nasdaq composite could stage a classic pullback as far down as 1600 before deciding on a reversal or continuation of the primary bear trend.

This is a heavyweight week with the Job report coming up on Friday (see stock market calendar). Consensus for nonfarm payroll is of course for a better number than last month but consensus range continues to be very wide, covering the positive and negative zone. Yes, analysts are rarely on the same side of the market. However, consensus for unemployment rate is for a higher 8.9%. This means that analysts are still not expecting peak unemployment rate yet. Yes, peak unemployment is what a lot of technicians and speculators are waiting for before jumping in but with big names still laying people off, it could take some time.

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What a Week So Far...

GDP turned in worse than expected but slightly better than the last quarter, Jobless Claims is better than expected but all the Dow did was to continue its short term neutral trend without much of an indication of a breakout. The only area of strength so far is in the NASDAQ composite which seemed oblivious to what the Dow and the S&P500 is doing so far as it continues to reach for the sky.

As I have mentioned before, the longer the neutral trend, the more explosive the breakout. Could tomorrow's ISM index be the catalyst needed? Consensus for the ISM index is again a very positive number of 38.3, up from 36.3. Recently, almost all consensus are for more positive numbers as analysts and leaders around the world expect economic recovery by the end of the year. In fact, the Chinese economy has already seen and experienced recovery throughout 2009 so far through a strong consumer market. Indeed, I was walking down the streets of Shanghai lately and I could feel no sense of recession. Consumers are happy and spending like nothing ever happened.

Dow Continues Sideways Ahead of GDP

The Dow continued its short term neutral trend today closing down 8 points. The bulls took the day from the bears who opened the market down significantly after a lousy store sales report. This goes to show that there are still significant bullishness in the market. In fact, investors have been continuously reallocating assets from bonds into equities over the past few days as bond yield rises across the board ( see bond yield curve). This could have been the source of support we have witnessed over the past few days.

Consensus for GDP is a better number of -5% from -6.3% last month. Personally, I think this is a dangerous call that could spark an early sell-off whether or not it is met. This also coincides with the Dow still struggling at the 8000 points resistance zone which could start a pullback if a significant down day results from this. So far, every technical indication, from short to intermediate term, have been shouting "Pull Back" but the market has been resilient. One thing can be sure, once the market decides a direction, the move will be sharp and significant. Neutral trends are like coiling a spring... the longer it coils, the bigger the resultant action.

Dow & The Swine Flu

The Dow continued its short term neutral trend today as it corrects 51 points.

The dreaded swine flu is beginning to get around the world as memories of the Bird flue epidemic returns. The flu virus just keeps getting stronger and stronger, putting pressure on an US economy that's struggling to come back from the recession. In fact, the swine flu coincided with all the technical resistance levels no matter what method you are using; fibs, elliot, MAs and even financial astrology. Already, investors are selling off on blue chips even though some of them had really good earnings report.

Even though the market is clearly under pressure, all 3 major indices are showing excellent resilience by holding above their respective 50DMA and maintaining their short term neutral trends. We will be watching for a strong break below the 50DMA as the first indication of a pullback.

Heavyweight Week Ahead!

The first new week of every month are always heavy and this week is even more so with the GDP and FOMC announcement coming up on Wednesday in addition to the monthly ISM index on Friday (see stock market calendar).

All of these are coinciding with the first weekly retreat on the Dow since its 6 weeks rally begun. In fact, both the S&P500 and the Dow has retreated right on their 30WMA, which makes a strong pullback very very probable. So far, that inevitable pullback has yet to happen. I would see it happening this week as consensus calls for a higher GDP number of -5%. This is quite an ambitious call and would only cause profit taking if it really work out or sell-off if it is not met. I am of the opinion that we have seen the worst this crash has to offer but I would not see the market go much higher without a significant pullback.

The Struggle Continues...

The Dow continued to struggle at the 8000 points region whole week long, barraged by good and bad news. Analysts are split into two camps once again... the fake out camp and the recovery camp. Analysts of the fake out camp contend that this is merely a bear market rally while analysts of the recovery camp contend that this is the start of a bull market. Such a split of camps usually signal that something significant is changing about the market and the economy. The last time analysts are this split up was just before this market crash begun. Could this really be the start of a bull market? I won't be convinced until I see how the pullback ends up.

So far, the Dow has established a short term sideways trend along the 8000 points region. The only thing that looks bullish about this is the fact that it is still treading above its 50DMA, which is great. The Dow needs to hold up above its 50DMA for this rally to continue. A break down below that line would signal the start of the pullback that I have been talking about for so long.

DJ30: 6th Straight Up Week!

The Dow made its 6th straight up week last week, which is definitely something to celebrate about for the ignorant. For the professional and veteran, we all know that each consecutive up week brings us closer to that inevitable pullback... what the Elliot wave guys call Wave B or what the Dow theorist call the Secondary Movement and what the Astro-finance guys deem coinciding with Venus Direct. Phew... what does all that jazz mean? Simply that this week is going to be a very dangerous week. Yes, the Dow's overbought short term and intermediate term and running into a strong resistance band. All these tells me that the pullback that I wrongly estimated would happen last week might just happen this week.

We all like the market to go straight up but it is just out of the realm of humanity to do that. Why is that so?

Fear + Greed.

Greed causes traders to drive prices up as they follow the herd but as prices go higher and higher, the marginal utility of profit making falls and the fear of losing those profit takes over. It will come to a tipping point where making more money is less satisfying than the fear of losing those gains so far and then a profit taking occurs, taking the market down. This is the reason behind the zig zag movement of the market. So, there are no conspiracies for your money, our emotions and nature as human conspired against ourselves.

More Signs Of Economic Recovery...

The Dow staged a late day rally today, ending the day up over 95 points as more signs of economic recovery was announced today. Both the jobless claims and the philly fed numbers came in better than expected today, coming off their worst levels. What in the world is the Philly Fed? The Philly Fed's the Philadelphia Fed Survey which measures manufacturing conditions in the Philadelphia Federal Reserve district and is widely followed due to its correlation with the ISM index. With the Philly Fed following up on better ISM number this month, we are more and more convinced that the worst for the economy might be over.

Investors and Traders obviously think so too as they fought off the early bunch of profit takers and defended the positive territory. So far, we have not seen the pullback that is widely anticipated. In fact, the Dow did an important but relatively mild congestion breakout today. The Dow has been congested at the 8000 points short term resistance level for way too long now and such a breakout may serve to once again push back the pullback, which in my opinion, is inevitable. Tomorrow is options expiration Friday and is expected to be a relatively volatile day (see stock market calendar).

Those of you who wish to follow me on some of my trades may follow me on my twitter at http://twitter.com/jasonnoguchi .

The Dow remains in a primary bear trend, intermediate bull trend and short term bull trend.

Economic Recovery Cycle?

You won't need the Fed to tell you that things are getting better if you have been following economic numbers (or my blog) yourself. The Dow closed up by over 109 points today in a late day fight back by the bulls. It was a tough fight today as the bears almost tipped the scale in the afternoon.

More and more I am led to believe that this may be the start of an economic recovery. If the numbers are recovering and the Fed is talking about recovery on TV, then the recovery could already have taken place some time back (just that it wasn't apparent). The Empire State Index (see stock market calendar) turned in way better than expected today, in fact, the best since mid last year. Even though the Empire State Index has a relatively short history compared with tomorrow's Philly Fed survey, it still is a closely watched leading indicator for the ISM index. The ISM index has also gradually recovered for 3 straight months already. If tomorrow's Philly Fed survey turns in better than expected, we could see a very positive reaction to it.

So, does it mean that the stock market is going up up and away? Again, stock market does not move in the exact same way as the economic numbers do. So far, the Dow has been in a congestion along the 8000 points resistance level for 2 weeks now. If it does not find the strength to break this level soon, we might see the pullback that I have been talking about this whole week. No matter what, the pullback is going to happen and until it happen, there is no way to tell for sure if this is a bullish reversal or just a very extended relieve rally.

Weak Retail Sales?

The Dow closed down 137 points on "weak retail sales" today. Retail sales came in worse than consensus today, spurring an early pre-market sell-off which lasted throughout the day. The bulls tried to take back lost ground in the morning (which is a good thing) but succumbed by the end of the day.

Now, the real issue is; are retail sales really "WEAK"??

Yes, retail sales were down 1.1% despite a consensus of +0.3% but what investors overlooked today was the fact that retail sales is an extremely volatile number. Even in the good economic conditions of 2005 to 2007, frequent drops to an average of -1% was commonplace. On top of that, -1.1% is far better than the dips of more than -3% of last year, this actually tells me that things are getting better, not worse.

As I have mentioned, this is going to be a volatile week with earnings, options expiration and a couple of big numbers coming up (see stock market calendar). In fact, the Empire State Index is up next tomorrow. So far, there is still no strong indication of the pullback that I mentioned on Sunday. We shall continue to monitor.

Dow Going Up & Up?

Welcome back from the Easter Long Weekend! :)

Hope you guys enjoyed yourselves!

The Dow made its fifth straight up week last week. In fact, the last time the Dow made 5 up weeks in a row was just before the market crashed in October 2007. So, is the Dow going up up and away from now on? Well, here's the problem... 5 and more up weeks are common in Bull markets but this is a primary Bear market, not a bull market. Such a sudden strength within a primary bear market is definitely going to run into profit taking and breakeven takers very soon. Indeed, as I have mentioned before, the real test of integrity comes when the correction comes in. The depth of the correction will tell us if this is a reversal pattern or just a continuation pattern. For now, short term resistance is around 8500 where I see as the high probability area for that correction. In fact, this is the same view held by the Fib guys, the Wave guys and the Astro guys... is the whole technical analysis community going to hit it this time?

I also suspect that we should see the correction begin as early as late this week, coinciding with the earnings season. If earnings are good, investors are certain to take profit and if earnings are bad, investors are certain to bail, either way isn't good. So this is going to be another period of volatility for sure.

This is also Empire State index and Philly Fed week (see stock market calendar). Investors would also be watching these figures for signs of stabilization or recovery.

For now, the Dow continues to be in a Short Term and Intermediate Term Bull trend in a Primary Bear Trend. Happy Trading!

Good Friday Rally

I must admit I didn't see this coming. I wasn't expecting the day before a long weekend to be sooooo explosive! The Dow confirmed its 50DMA support level and broke the 8000 level decisively on good volume. Yes, this is the kind of action needed to keep this rally going. On top of that, the Dow made its 5th straight up week in a row today! This definitely makes this too good to be true and that the Dow should make its defining correction soon. Why will a correction be defining? That's because if it rebounds before making a new low in the coming correction, it would complete a primary reversal pattern according to the Dow Theory and we could officially call the bears dead. However, if it makes a new low, it will simply make this "rally" an intermediate relieve rally within a primary bear trend. At this point of time, this "rally" looks like its losing a bit of steam as trading volume continues to contract over the past 3 weeks. Well, the week following Good Friday has typically been up weeks, so lets see if it stands true next week.

For now, HAPPY GOOD FRIDAY and a GREAT EASTER WEEKEND! :)

Last Trading Day Before Easter Weekend...

Yes, tomorrow's the last trading day before Easter Weekend, which explains the relatively low trading volume this week so far.

The Dow made a critical rebound off its 50MA today, which saved the intermediate uptrend... for now. Volume remains relatively low and I doubt we will see any explosive action tomorrow.

Here's the interesting part... what usually happens on the week after Easter weekend? Some how, over the past few years, the week after Easter weekend has been positive weeks, even in a market crisis like 2008 and 2003. Also, the last trading day before Good Friday has typically been positive days as well. However, these are just something to feel good about since there's no empirical reason or logic behind it.

Trading volume continue to decline going into this intermediate bull trend and the bullish momentum has faded significantly. In fact, there is a slight bearish divergence on the Dow right now, which makes it an uncertain point for a strong entry. This is clearly an intermediate term consolidation, or taking a breather, before investors decide where to go next. For now, the Dow needs to hold its 50DMA support level.

For now, the Dow remains in primary bear trend, intermediate bull trend and short term bull trend.