More Good News... Little Gains...

FUNDAMENTAL ANALYSIS
The Dow closed sideways today at 13671.92 after a day of huge intraday swings. Market opened weaker when the unemployment claims report turned in higher than expectation. Unemployment claim report has always been a strong market mover but it was suddenly reversed by a historically less important report, the existing home sales report. Existing home sales picked up in September due to bargain hunting in the foreclosure market, adding points to the possibility that the housing market might have found a bottom at last.

The existing home sales report is a monthly report released by the National Association Of Realtors. It is not a historically important report as existing home sales do not directly correlate nor is indicative of short run GDP performance. However, this report has picked up weight lately due to the housing market slump and the credit crunch. As the outlook sours in the housing market, buyers tend to stay on the sidelines, watching for the "best time to buy". If buying picks up and persists, it could be indicative that a bottom has been found at last. So, I would say we need a couple of months more to confirm this... that's how things are in the Real Estate market... things just don't move as fast as the stock market.

TECHNICAL ANALYSIS
Volume continues to climb, a higher high and a higher low is made, all indicative of bullish undercurrent. However, one element is lacking... a strong positive close. The Dow is again at a dangerously important juncture. If volume continues to climb without significant advances, the Dow may still succumb to selling pressure as buyers are exhausted without significant gains. From the looks of it, the decision needs to be made today if the buyers or sellers would make the next trend. If we do not see a significant gain today, we need to be prepared for the worst.


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Form The Phalanx!

The Dow stood its ground valiantly against the relentless waves of ruthless assualts by sellers, weak existing home sale report, growing oil price and bad earnings release. Wave after wave of sellers slammed into the shields of it's Phalanx but it never gave ground nor gave way, defending the last line of defense around the 13500 hot gate. More than half the day have passed before the waves of sellers exhausted themselves allowing the Dow Phalanx to prouding advance and hold ground. By the end of the trading day, much of the lost ground has been retaken. The King would have wished for more time to push into positive territory but time, as usual, wasn't his ally.

Tomorrow's main mover would definitely be the jobless claim report, or what is correctly known as the Weekly Claims For Unemployment Insurance report. This indicator is released by the Department of Labor since 1967. Increased unemployment dampens spirits and affects spending going forward, that is why it is now an important leading indicator. Investors are definitely looking forward to a drop in unemployment claims in order to paint some optimism into the generally pessimistic picture now.

The King stands fast and the Phalanx looks strong... what do you think?

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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