Ben's New Approach...

FUNDAMENTAL ANALYSIS
The Feds held rates steady this time round as most analysts expected. Stocks actually rallied on that news before pulling back slightly to close positive by the end of the day. This intraday rally actually revealed the fact that investors are still negative to a rate hike and the late pull back revealed investors' uncertainty about tomorrow's GDP numbers (see economic calendar). What was really interesting was Uncle Ben's new approach to this situation... LIP SERVICE! Yes! Call it brilliant or call it revolutionary but he is obviously trying it as a new technique to controlling inflation. All he did today was to suggest that inflation and oil is going to come under control, hoping that traders catch on with it and react accordingly. In fact, oil did trade lower on that comment which shows its effectiveness. But will oil rebound tomorrow? Everytime oil trades down like this, it rebounds the very next day. What about the rate hikes? There was nothing in Uncle Ben's speech to actually suggest that rate hikes are imminent. So, what changed today? Actually, NOTHING! :) That was why Dennis Gartman said today that "The Fed Meeting Never Happened".

TECHNICAL ANALYSIS
Again, nothing really changed today. The Dow was totally sideways today as it forms a bearish continuation pattern at the doorstep of the March Low. Even on the technical front, it was as though today's market never opened. My takes yesterday still stands.

Uncertainty Ahead Of Fed Decision...

FUNDAMENTAL ANALYSIS
Stocks and oil traded in a volatile, uncertain manner today as investors await the BIG Fed decision tomorrow (see economic calendar). Even though the Fed is widely expected to start hiking rates soon, would they do it this time round? the possible effect of such a rate hike remains highly uncertain. Could the rate hike move the US dollar up enough to bring down the speculative fever in oil? What would a rate hike when the economy is still struggling do to the economy and the market? Yes indeed, the Fed has not raised interest rates during an economic slump for longer than I have been trading and that certainly throws a new screw into the clockwork. Could that be a positive or a negative for the stock market? How would investors construe such an act? What if the Feds decided to keep rates stagnant? These are questions both professional and amateur traders are asking recently as consumer confidence sinks to a 16 years low today. Yes, you don't even need to know what consumer confidence index is to tell that a 16 year low is not a good thing. The US dollar slump has certainly caused havoc all over the world in terms of food and energy inflation, so, raising rates is certainly the way to go to solving a lot of problems. However, what would that do to an US economy that is right at the doorstep of an economic recovery? It would certainly bring down the strong export numbers we have seen in the GDP numbers so far. So much uncertainty which no econometric models could answer with any certainty.

TECHNICAL ANALYSIS
As a technical trader, I would certainly make my final decision only after receiving the real intent of investors through price charts after the Fed decision. For now, my charts are still telling me the same strong intermediate and short term downtrend, much like the one we saw back in Dec to January. The March low was also broken intraday today but isn't significant enough to justify and conclude a technical break of the March low, therefore, the March low support level is intact... at least for now. Well, there is a saying on wallstreet that "there is no such thing as a triple bottom". If the double bottom formation created by the January and March low isn't enough to rebound the market, a visit back down to these levels is more likely to be very bearish. This time round, it would coincide totally with the Fed decision. So, the chart is telling us that investors and traders are bearish and have been bearish about all that have happened over the past month and going by the principle of technical analysis, they are expected to continue to be bearish until something significant hit the wires.

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FOMC WEEK!

FUNDAMENTAL ANALYSIS
Its FOMC week again as Uncle Ben and his crew are scheduled to announce their rate decision this coming Wednesday (see economic calendar). What does FOMC mean anyway? FOMC = Federal Open Market Committee. It is the top committee in the Federal reserve board that determines monetary policy in order to control inflation and reduce unemployment. Investors are not looking forward to a rate cut this time round but instead to a rate hike in order to push up the dollar and combat rising oil price. When interest rate goes up, the value of the dollar goes up as money base in the economy reduces, hence reducing the price per barrel of imported oil. That's the relationship between oil price and interest rate. Right now, combating high oil price is indeed the most important thing all over the world. China has raised energy prices and world leaders have met over the weekend to discuss how to combat high oil prices. All these goes to show that high oil price cannot go on forever as it gets too painful to bear. Sadly, human beings are usually driven to action only when the pain is too much.

TECHNICAL ANALYSIS
The Dow lost a whooping 3.78% last week alone and have retreated more than 6% since it peaked in May. The short term trend for the Dow continues to be down with the March lows as immediate support. Could the March lows coincide with a turnaround in oil price, thereby rebounding the stock market? It just might with all the talk and action against oil but so far, there are still no technical indications suggesting a turn around in oil price yet.


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Not Too Surprising Day...

FUNDAMENTAL ANALYSIS
Market fundamentals are once again strengthened today with Q1 GDP continuing to be positive and the Fed cutting a "probably-final" 25 basis point cut... all within our expectations. Why then did the market sell off right after Bernanke's speech, you may ask? Simply because this is a volatile market on a rocky path to recovery! The Dow have been staging a very rocky recovery since March 08, marked by strong sell offs on seemingly good news by the last of the skeptical bears still believing in the "buy into weakness and selling into strength" method, which is useful only in a totally sideways, volatile market. Those are the last of the bears who still does not believe in a recovery despite my 15 signs of the bottom and the fact that the Dow has gained an annualized 53.64% over the past month! Well, I must say those bears who sold into the strength today would have nothing more to buy when the market continues its recovery and then more and more bears would have to turn themselves into bulls in order to continue participation in the stock market.

Tomorrow's ISM index is going to be critical as well (see economic calendar). To play into my 15 signs of the bottom, the ISM index need to show continued signs of recovery. The ISM index has already begun recovering last month and a follow up this month, no matter how small, would confirm the recovery and set the stage for more upside in the stock market. ADP payroll today also pointing upwards, shedding some light of optimism on this Friday's Job Report as well. All in all, we could be in line for a pretty good month if all the numbers line up properly and a final word of caution... never take single day moves at face value.

Adding support to the growing optimism in the market is the 2 days correction in oil price. Even though it is not yet a significant pullback that might suggest leading into a full scale correction, it is still great to see the great crude oil halting its advance at least for now.

Let's recap and update our signs of the bottom:

1. Recovering ISM index (will tomorrow's number continue to point upwards?)

2. Gold getting beaten like dogs (and still being whipped)

3. Consumer Sentiment index collasped (its always grimmest before dawn) in March and hit a 5 years low in April

4. Fed bailout of BSC is demostration of their resolve not to allow the financial system to sink.

5. Existing home sales rising suggests possible start of the bottom in housing market.

6. Extremely steep bond yield curve suggests that smart money needs to move back into value stocks soon. (which is already rising as money moved back to equities from bonds)

7. GDP has not gone negative despite widespread speculation on an academic recession. (Even the recent Q1 GDP turned in positive despite widespread pessimism)

8. Capitulation in the job market with an 80,000 loss in March.

9. Biggest jump upwards in the Empire State Index in 5 years.

10. Inflation coming in inline with expectations.

11. Capitulation in the housing development market signalled by a 17 years low in housing start number.

12. Capitulation in the housing sales market as signalled by a multi-year low new home sales number.

13. Jobless claims decreasing, signalling an economic pickup.

14. US dollar demostrating clear signs of strength.

15. The VIX getting below 20 once again.


TECHNICAL ANALYSIS
The Dow went for the 13000 resistance level today just to find that it simply could not break it as it is already in a short term overbought condition. In fact, today's market action did nothing but close the Dow sideways once again with a hint of bullishness by making a higher high and a higher low. In fact, stock options traders would have been able to make a quick one day profit today relatively risk-free. There are many ways to trade stock options... see my tutorial on Options Trading Styles. Those of you who do not know what stock options are all about and want to learn the basics, you may want to go through my free Options Trading Basics Guide. Ok, back to our technical analysis. From the Dow's proximity to its 200 days moving average, which is historially a strong resistance level as well, the obvious strength of the 13000 resistance level (demostrated through 2 failed attempts on 24 April and today), as well as the short term overbought condition of the Dow, I would conclude that the path of least resistance is a pullback to probably around 12650 before rebounding to challenge these resistance levels again. I would not expect a surprise break out these few days as the last of the bears would certainly want to still sell into any display of strength.


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Dealing The Death Blow To The Bears...

FUNDAMENTAL ANALYSIS
The Dow made yet another strongest one day surge in 5 years today beating the single day 416.66 points surge last week with a 420.61 points surge today! Who says records are broken only once in a blue moon? How about once a week?! :)

The Fed really dealt the death blow to the bears with a 75 basis points cut to both the fed fund rate and the discount window rate today. The bears have already been trashed and bleeding with all the Fed action so far and today's 75 basis points cut, although a little disappointing to investors expecting a 100 basis point cut, dealt the death blow which totally defeats the bears. The Fed has communicated it loud and clear, "there aren't going to be no crisis as long as we are around!". Not surprising, the financial sector led the way in today's rally moving up 5.64%.

In response to this optimism, investors fled from gold and long term bonds today back into stocks and with the extremely steep bond yield curve promising almost no return on the short term bonds, we should be witnessing the return of short term speculative money back into equities real soon. The economy may not be looking all rosy right now but let's not forget that the stock market is not a direct reflection of the economy and usually leads the economy by 6 to 12 months.

TECHNICAL ANALYSIS
Another record breaking day in the Dow today. The thing I really liked about today's rally is that it happened with slightly above average volume and not a huge volume surge. A huge volume surge will suggest that this is a blow out day where all the bulls are exhausted in one day. No doubt we should see a good follow up over the next few days. However, don't be surprised even if tomorrow and Thursday end up sideways or slightly negative due to profit taking ahead of the long weekend (see economic calendar).

Is this going to be just another dead cat bounce aka relief rally? This is a question that needs to be answered by the 12750 resistance level. The 12750 has proved to be an extremely strong resistance level, stopping the Dow dead in its track twice on 4 Feb as well as on 28 Feb, ending both relief rallies. What is different this time round is the strength displayed in this rebound so far and the fact that the Dow formed a double bottom formation on the conservative Jan lows that I proposed last month. I maintain my optimism and look forward to how the market does at the 12750 level. Those of you who wants a risk limited way of speculating on this rally, you might want to learn how to trade stock options.


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50 Points Cut Disappoints!

FUNDAMENTAL ANALYSIS
What did I say yesterday? Here's a Quote:

"So, here's the bottomline for tomorrow ... 25 points, the market down. 50 points, the market still down. 75 points and above, the market up instantly and then down within the next two days."

Well, the Fed totally disappointed the market today with their 50 basis points cut and I really have to wonder why's that. The Fed can NEVER cut 150 basis points in just 2 weeks! In fact, 125 points cut in 2 weeks is already a give away! But, the market being greedy as it is now, wasn't pleased with merely having their demands fulfilled like some spoilt child, bringing the Dow down from its day high to end down 37.47 points. That was the reasoning behind my predicts yesterday. Adding some pessimism in the background is the GDP number disappointing with only 0.6% up. This really feels like what some analysts call a "Gro-cession" where the economy grows at almost zero rate, slightly above recession but feels totally like a recession. So, what's the way ahead? The Job report this Friday of course! (see economic calendar) The Job Report is likely to be optimistic and perhaps even beat estimates due to increased employment due to the rising export sector. In fact, the ADP numbers turned in very healthy today as well. The Job report is a classic, grandfather-of-all, economic indicator which is always positive if it is healthy. So, anymore rate cuts ahead? I seriously don't think so. The inflation indicator that the Feds are watching turned in very worrying today. Core PCE and PCE both shot skyhigh compared with the numbers in December.

TECHNICAL ANALYSIS
The Dow formed a huge shooting star signal today indicating weakness in this short relief rally and possibly the start of another leg down. A shooting star is a candlestick signal which has a small, negative body with a long tail on top. This signal is created due to the bulls being brutally beaten down by the bears throughout the day, dragging the stock down from its intraday high to end negative for the day. If the Dow should turn down from here, we would be paying a lot of attention to a test of the 12000 level. Breaking that level would push the market further into this bear market. However, if the 12000 level holds, it would form a double bottom, which is an even stronger point from which to accumulate a rally.


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FED DAY!

Uncle Ben and his gang started their 2 days meeting today and will be releasing their rate decision tomorrow.

The strong Durable Goods Order number today indicated that the economy is still stronger than most has expected and brought down Fed fund futures a little. It is now pretty uncertain what the Fed is going to do... 125 points cut within 7 days in this environment is just unthinkable.

So, here's the bottomline for tomorrow... 25 points, market down. 50 points, market still down. 75 points and above, market up instantly and then down within the next 2 days.

Calamity Averted....

FUNDAMENTAL ANALYSIS
What was shaping up to be a historic 500 points opening to the downside with a possibility of ending the day 1000 points lower, ended up much "better" than expected when the Fed jumped right in with an Emergency Rate Cut of 75 basis points! (1 basis point = 0.01% by the way)This is the BIGGEST emergency rate cut given since 1984! Some analysts think that all Uncle Ben did was to show the state of panic that the regulators are in and some others think that he is catching up with the curve at last. No matter what anyone says, reality speaks for itself with the market pulled back from the edge of calamity. Well, that goes to show that rate cuts do work afterall and that investors are much more savvy compared to the crash of 1987. Investors do recognize that such weak openings are perfect time to be buying as such huge ditches usually heralds a rally. Such expectations in an efficient market has the power to prevent the huge ditch from happening in the first place. Therefore, I think the market action today proves 2 things; 1. Rate cuts always works... its just the magnitude of the cut that matters. 2. The markets are getting more and more efficient as the textbooks suggests. Indeed, I do see a few other factors that are contributing to the possibility that the bottom is near. Firstly, bond yields have really been severely depressed over the past few months. In fact, the short term bond yields are so low now that soon investors would start to notice that the returns on these bonds hardly offset inflation and that equities are looking extremely cheap, hence a move back to equities. Such a flight to bonds is also indicative that inflation is really not as much of an issue as the Fed has expected. Secondly, oil prices are also severely beaten down, hence reducing the possibility of further energy driven inflation, reducing production costs and allows the Fed more room for rate cuts. All in all, the case looks good both fundamentally and technically for a bottom soon.

TECHNICAL ANALYSIS
Yes, the Dow ended in a dragon tail formation day again. A dragon tail formation is an inverted hammer with an extremely long tail occuring at the bottom of a significant draw down. Dragon tail formations are extremely strong reversal signals and needs an up day tomorrow as a follow up in order to confirm. The Dow rallied back on 17 August 2007 on a Dragon Tail formation as well. In fact, this dragon tail formation occured in line with our expectation of a dead cat bounce. With the market this oversold and multiples plummetted across the board, investors would certainly be accumulating at this point for a few days at least. In fact, this could shape out to be the first up week of 2008.


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Is This Even A Surprise?

Many investors are shocked that the market sold off today even when the Fed cut 25 basis points... these people obviously are not following my blog like you are.

Like I mentioned a few days ago, the market has already priced in more than 25 basis points cut! In fact, it has priced in a 50 basis points cut! That is why 25 basis point cut disappoints and spurs a selloff! In fact, I am surprised that the Fed cut at all knowing that 25 basis points is not going to help and that they risk loading a shaky inflation number.

With the sell off today, a few sideways days can be expected before the market continue its way down. Hey, hold on! "WAY DOWN"??? Yes! Today's selloff marked the end of the reaction rally that started on 27 Nov, which failed to break the high of the last reaction rally on 31 Nov! This transformed the "rally" so far into a bearish continuation setup, making a lower lower and lower high. With the 200MA support line at the doorstep, we would love to see it hold up and push the Dow back up. Fingers Crossed.


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THE BIG DAY!

Ok, here's my take for the Fed release today:

1. MOST LIKELY : No more than 25 basis point rate cut.
There are really little reason why the Fed should cut rates. A rate cut would only increase core inflation and deflate the already beaten dollar. Controlling inflation is still the number 1 concern of the Fed and nothing's going to change it. However, Uncle Ben has proven himself to be highly subject to market pressure and so, 25 basis points seem just right.

2. LEAST LIKELY : 75 basis point cut.
Don't even think about it.

3. MOST DANGEROUS : No cut.
It is the most dangerous and yet it is POSSIBLE! Like I said, there are really little reason why the Fed should cut right now.

4. MOST FAVORABLE : 50 basis point cut.
There remains a marginal possibility of a 50 basis point cut should Uncle Ben decide to make it a final cut. This could spur the Santa Claus rally everyone's wishing for.. (well, not everyone since a lot of investors are already shorting positions so far).

5. MOST RELIABLE : Trust in the US economy.
Its still the greatest story nevertold, its still got the kind of brains no one else in other economies have and its still the forerunner in all kinds of technological advancement and no matter what the Fed does, the US economy should still do well in the long run.

What's your take? :) Comment Now!

Everything's Nice & Rosy?

FUNDAMENTAL ANALYSIS
How can I finish writing about everything that happened today? :) Q3 GDP's up, PCE index's controlled within a nice 2.1%, ADP reports higher private sector employment growth, and most importantly, the Feds cut 25 basis points off the discount and fed fund rate... as expected. Well, the problem today is exactly that the rate cut was way too expected. In fact, the Dow was up nearly 100 points before the release! That was why the Dow went briefly into the red the moment the release was made. A 25 basis point cut in the fed fund rate and discount rate really does very little for the market and the economy in general, however, it really did hurt the dollar really bad, resulting in a new low against the euro. With the Fed release behind us, the real fundamental in the economy takes over... how does the odds stack up? On the positive side, Q3 GDP beat analyst estimates of 3.1% by turning in at 3.9%, driven mainly by exports, jobs are growing in the private sector, particularly in the service sector and core-PCE turned in a remarkable 1.9%. On the negative side, crude oil and heating oil continues to reach for the sky, compounded by coming winter, Chicago PMI index turned in a contractionary number and a dropping dollar (which has a small effect on inflation). Insofar, it seems like the good and the bad are in a deadlock now and the ISM index tomorrow (heavy weight number 1) and the Employment report on Friday (heavy weight number 2) should help investors decide if everything is as rosy as it seems now.

TECHNICAL ANALYSIS
No surprise on the technical front as the Dow continues it journey upwards after bouncing right off its 30WMA. However, it cannot be taken that the Dow is going to continue upwards from this point onwards as it closed within the 30DMA resistance band, which can still take the Dow down for a few days before it muster enough strength to make another break. We saw the Dow doing that back in 8 August where it headed straight down right after entering the 30DMA resistance band. Now, what is this "resistance band" that I am talking? That's what technical analysts have so wrongly deemed to be "resistance levels". Resistance level is never a thin and narrow 1 pixel line, no, every resistance level has effect around the level itself resulting in more of a band than a level. So, is this a good time to accumulate? I would say that this is a good level for a cautious and moderate accumulation, enforced with a sensible stop loss policy.


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Countdown To Fed... 1 Day!

Well, the day is upon us at last! The Feds will release their policy statement tomorrow afternoon after their 2 days meeting is over. Even though a 25bp cut in fed fund rate is what everyone's expecting, there are still plenty of reasons to suggest that the Feds might just hold rates steady! (that is why the fed fund futures are still not pricing in a more than 100% chance of a rate cut)The main reason of all would be the value of the dollar. When interest rates go down, the dollar value goes down too as a supply of new dollar floods the market, which could result in increased inflationary pressure. The dollar has already declined against major currencies in a big way and further decline could have complex consequences. Already, the commodities markets have edged higher across the board. In a nutshell, with a 25bp cut already priced in so far, there is really no telling how the market will react when the policy statement is released tomorrow. Will a rate cut spur a new rally? Not necessarily since much of it has already been priced in and there remains a number of heavy weight releases this week including the Employment report this Friday, which could still change things. Will not getting a rate cut spur a market decline? Very probable, especially since the market is reacting faster and faster to news and new information than ever before (Efficient Market?).

Today, the Consumer Confidence report turned in the worst reading in 2 years, bringing the Dow immediately to its intraday low. The Consumer Confidence report is not a historically important report due to the fact that it measures mainly consumer confidence towards the labor market. The labor market has been slow to react to changes in the economy so far, thus reducing the Consumer Confidence report's value as a leading indicator. However, it remains a good confirmation indicator of what is already known, or rather, already being suspected in the economy. What does a lower Consumer Confidence suggest about what the Fed is going to do? Nothing, as this is not an indicator Uncle Ben watches in his policy making.

Countdown To Fed... 2 days...

Analysts are expecting a 25 basis points rate cut in 2 days time in order to drive recession out of the door. Fed fund futures has priced in a 92% chance of a 25 basis point cut too. Such a rate cut would no doubt be the final one in a long time. The Dow continues to price in the expectation of a rate cut today, abeit on lower than average volume as most investors sit on the sideline. Tomorrow is likely to be another flat day in anticipation of the Fed release.

No matter how the rate cut eventually turns out, danger is already building up secretly in the background as oil price heads for the $100 mark and gold prices continues to surge. Eventually, when investors turn their attention from the fed fund rate, they will notice that oil prices have reached a level which could potentially be threatening to earnings in the short run. Danger continues to lurk in every conceivable corner slamming risk managers like myself with challenges from every front. Life has never been more challenging. Amen! :)

LANDSLIDE!

That's the only feeling I got from the market today. And what a great day!

Great day? Yes! Big drops like this are precious times where portfolio managers like us get to really stress test our portfolios! :) No amount of hypothetical tests can exactly duplicate the effects of a real occurrence on a portfolio. The Dow dropped the biggest single day drop since the 387.18 points drop of 9 Aug 07. I must admit that I was really surprised with the magnitude of the drop, especially when the slight pull up at mid day almost convinced me that the market has found a botton. Well, as a faithful technical trend follower, I never act on prediction. I will always look for definite signs before acting on it... and am I glad I stuck with it.

This drop has brought the Dow back almost all the way down to its 30WMA. In fact, the Dow could drop another 122 point or so to land on the 30WMA level at about 13400 before staging a rebound. The Dow always back down to its 30WMA due to regression to the mean (the mean here centered around the 30WMA) caused by the law of diminishing marginal utility of investors. With the market moving towards more and more efficiency (I'm not suggesting that the market is efficient as suggested in the Efficient Market Hypothesis), periods of explosive gains would pullback down to the mean more readily than we have witnessed before the great bear market of 2000 - 2003.

The market outlook has turned slightly sour lately as possibilities of another rate cut sinks below the quicksand, leaving behind the certainty of decelerating economic growth ahead. The Feds continue to look more inclined to a contractionary monetary policy, as they always have since inception. Before any of you throw curses at the Fed, I must say that their job is an extremely difficult and sensitive one, making decisions that nobody likes to make, deserving more praise than curses. On the one hand, they need to combat inflation and on the other hand, they need to make sure what those actions do not result in a depression! It is such a fine balance that these guys literally live their lives on a balancing beam. As Chaos Theory so correctly suggests, that the transition from stability to chaos in a complex system is often occassioned by the change in a single variable. The problem here is, nobody really knows what that "single variable" is until hindsight! That makes the Fed's job look like a man leading a team through a minefield. As investors, it is always prudent to keep a farsight during uncertain times like this.


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Thus Ends A Sideways Week...

I don't usually write on Friday nights but due to the growing audience to this blog, I have decided to begin Friday night writing. So, thank you for tuning in again and enjoy...

This sideways week has ended on a slightly upbeat note today as core-PPI (inflation) index increased by only 0.1%, beating estimates of 0.2%, further proving that inflation is not a concern in the economy... so, what is? Recession of course! This reading continues to support a rate cut at the end of the month and thus the optimism.

The Producer Price Index (PPI) is an extremely important index and is the first major inflation indicator to be released on the second Friday of every month. The PPI is made up of a group of indexes, measuring the change in price manufacturers pay at various stages of production. Of greater concern to the investment community is the "Core-PPI" index. The core-PPI index takes highly inelastic and seasonally variable elements such as crude oil and food out of the equation in order to arrive at an index that truly reflects market action. The Core-PPI is so important that the investment community often neglect the main PPI reading. A classic case in point is today. PPI was higher than expected due to higher crude and food prices but Core-PPI was lower than expected by 0.1%. Investors chose to act on the Core-PPI, not the main PPI number.

On the technical front, the Dow continues to play by our book by trading atop the 14000 level as expected. There was no conviction and strength behind today's move as the advance was made on much lower volume than the drop of yesterday, so, don't take this as the start of a rally... the Dow's just not prepared for that yet. The Dow continues to look over extended in relation to its 30WMA, so the danger's not over yet.

More Sell Offs...

FUNDAMENTAL ANALYSIS
We witnessed more profit taking today as profiteers bailed out heavily when the Dow reached new historical highs intraday. The profit taking action left the Dow to close down by 62.57 points or 0.45%. The day actually started out extremely well when Jobless claims fell more than expected, allowing the Dow to open up strongly. Well, not strange to see profit taking at this height as the marginal utility of profit pleasure gives way to the fear of loss. (see my article on how the Law of Diminishing Marginal Utility affects markets ) Afterall, the stock market is not totally based on market fundamentals, right? (George Soros calls the over reliance on market fundamentals the "Market Fundamentalism")

TECHNICAL ANALYSIS
The Dow certainly played according to expectations by trading along the 14000 line as I mentioned yesterday. However, today's action is slightly different from yesterday's. Today, the Dow sold off on heavy volume and spurred a ton of bearish reversal signals in the individual stocks. This could mean trouble and a test of the 14000's holding power. Obviously a sell off has started, which is nothing to be surprised about as the Dow is already very over extended in comparison with the 30WMA. (for a detailed discussion on the 30WMA and its significance, please read the comments on my post on 9 Oct.)In fact, for the rally to continue on healthily, I would expect the Dow to trade sideways for many more days to come, or simply make a significant ditch before rebounding back up. However, the danger remains at the 14000 border. If the Dow should ditch below the 14000 line, it might find it a challenge to get back above it again later on. So, I would certainly prefer that the Dow simply trade sideways above the 14000 level and wait for the 30WMA to catch up a bit... However, I won't bet on it as the internals does look awfully dangerous right now.


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YES!!! Dow Makes It To The Top!

FUNDAMENTAL ANALYSIS
The Dow makes historical high at last closing at 14164.53 points!!! *~Pops Firecrackers~* In fact, the Dow did not just make one historical moment today but 2! The other historical performance is that the Dow made a month to date gain of over 7% since 10 Sep, the strongest single month move since 2003's great rebound! Too much optimism in the market over too little real data? I think so too. The market started out mixed and uncertain this morning but optimism soon flooded the floor and pushed the market straight for new highs after the Fed Minutes was released. The Fed Minutes "seemed" to support yet another rate cut at the end of the month. It is indeed hard to see where the Fed is going with this expansionary monetary policy but as long as it is an expansionary monetary policy, the economy can be deemed to do better in the months to come, starting a huge pricing in of that possibility in the stock markets. An Expansionary Monetary Policy is a policy taken to expand the economy by increasing the monetary base with actions such as lowering of Fed Fund targets. Even though the minutes looks good, Fed Fund Futures are still pointing to a less than 50% chance of a rate cut at the end of the month... are investors heading for a huge disappointment? Whatever the outcome, I would not be surprised.

TECHNICAL ANALYSIS
The Dow is once again in lala land... the land of the unknown where dragons lurk in the dark beyond. The Dow has done well rebounding off the 14000 point, creating a short term support level from which it can pursue higher gains, and it did. A strong bullish momentum is now underway, pushing the Dow at the doorway of being over-extended. In fact, from the Dow's retracement pattern so far, I would not be surprised for the Dow to continue to move further up but retrace back down to around today's level when the inevitable pullback comes. As an trend follower, I never make a judgement before things really happen and I will be peeled at the first indications.


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Slight Profit Taking...

The second week of every trading month usually starts weak and with some profit taking like this. The first week of every trading month is packed with so much important economic releases and excitment that the second week usually starts by taking some of that profit away. So, what are we looking forward to this week? The PPI of course. The only heavy weight release for the week. ( please see http://www.mastersoequity.com/option_trader_hq.php for economic calendar) For now, the Dow continue to trade sideways in a very tight channel around recent highs, with short term overbought sentiments digested quite nicely. It does seem like there are just slightly more upside to come, probably pricing in the PPI results for the week, before the Dow over extends on a weekly time frame, inceasing the probability of a pullback to the weekly 30MA again.

Upsy Tipsy...

The Dow climbed a fairly nice 170.38 points last week. So far, all economic data are supporting the possibilities of more rate cut this time round, probably another 25 basis points. The only surprise I had was the employment report last Friday. I was expecting optimism in the market only if the employment report also turn in a little gloomy BUT NO! :) What happened was a textbook response to the employment report which turned in much much better than expected! :) Equities futures SOARED at 0830am when the report was released and a huge wave of optimism roared through the financial system, lifting equities and the dollar in a response we learnt only in our finance textbooks. :) (ok, for once the textbooks were right!) With the numbers continuing to point towards a rate cut when the Fed release their policy statement end of the month, I would expect further pricing in of the rate cut throughout the month at decreasing velocity.

Investors Eagerly Awaits Employment Report

FUNDAMENTAL ANALYSIS
The Dow ended sideways today as investors eagerly await tomorrow's employment report. The employment report is truly the economic indicator of all economic indicators; The ONE Economic Indicator. This is also the economic indicator most closely monitored by the Feds in concocting their fed fund rate policy. Indeed, the employment report is so highly anticipated that the Job report and factory orders report today hardly matter. The employment report, or also known as the Employment Situation Report or the Uemployment Rate report, is the most direct indication of USA economic well-being. As the saying goes, what matters is the bottomline. The bottomline of every economies are happy, employed citizens who are contributing to the economy! Nothing else matter when the end result doesn't please. That is why this report has such significance, even though it is released every first Friday of the month (versus Mondays for the ISM index). So, what are we looking for in the Employment Situation report? Like all economic indicators, we are looking for a reading which supports investor's expectations. So, what are investors expecting? Investors are expecting data that increases the possibility of another rate cut! :) Which means that the employment report tomorrow should show a slightly higher than expected unemployment but not enough to cause widespread panic about a pending recession. This is a tricky balance which is difficult to predict. That makes for all the uncertainty in the market. Indeed, without uncertainty, there will be no efficient or liquid market and every other day will be boom or bust, making it impossible to invest in. The pricing in of another rate cut has obviously begun and would definitely magnifest as a nice bull run tomorrow if the employment report turns in "favorable". From the data so far... initial claims beating and raising the 4 months average and factory orders declining, employment report cannot be expected to turn in rosy.

TECHNICAL ANALYSIS
The Dow ended it's 2 days fall in an almost neutral day today. These 3 day's corrective action has allowed the Dow to get off the short term overbought region by a slight margin, increasing the possibility that we will see more upside to come. The low of 1 Oct, which I identified yesterday as a critical short term bottomline, continues to hold up safely. In fact, the 1 Oct low of 13893 is as important as the bottom of a baby cradle now! Break the bottom and be ready for a painful fall. Volume was low today as investors await tomorrow's data. A completely neutral day with very low volume is indeed as good as a market holiday. The Dow however continue to look slightly over extended as it trades high above its 30MA on a weekly scale. In fact, the Dow rarely trades more than 10% higher than its weekly 30MA before a significant pullback (this, surprisingly, conforms to the mean/variance theory). Currently, it is about halfway there. This is certainly not the best of times to put on new positions.


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