The Beginning Of The Re-Rebound?

There are little or no fundamental to talk about that contributed directly to the market action today. In my opinion, market movement these few days are purely technical. Remember I speculated that the Dow would retreat back down to the weekly 30MA line before staging a real rebound? The Dow went to a low of 13132.65 today, 132.65 points to the weekly 30MA line and then rebounded to end the day higher. Our momentum indicators revealed a definite reversal of bearish momentum to bullish momentum today, again, strongly suggesting that a rebound is imminent. Even though it is hard to pin point the exact day, I would say within these couple of days. So, some of you are asking me, hey, what happens if the Dow breaks below the weekly 30MA line? Well, such a break may not also indicate a full scale bear trend as we saw happened back in 13 June 06 and 19 April 05. When it happens, we need to take into consideration a lot of other fundamental and technical factors surrounding it in order to arrive at a conclusion as to what is going on, therefore, there is no way to answer that question intelligently. Anyone who tells you what will happen if such a break happens are merely speculating.


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Stocks Gained Despite Worrisome Signs Of Inflation...

FUNDAMENTAL ANALYSIS
Stocks gained today despite wholesale prices soaring up 1.3% in Feb. This is the highest increase since November and was double analyst expectations. Core inflation also gained by 0.4%, which is again much higher than analyst expectations and is double January's gain! All these tells us that inflation is slowly creeping back into the picture and rising inflation certainly gives more probability to the Greenspan Prophecy (recession by end of the year). However, the markets were still led by yesterday's bullish momentum and closed up higher today yet again. However, I do see that there is a significant drop off in volume today suggesting that many investors were starting to feel uncertain about what impact these inflation numbers will have on the market and were already sitting on the sidelines. On the other hand, we might note that the sudden surge in PPI is mainly led by a strong surge in oil price from January to February. If this number is oil driven, then it may not stay up there for long as oil prices are now settling nicely into a $55 to $60 range. Tomorrow, we will have the all-powerful CPI and Consumer Sentiment numbers. While a higher PPI on one month may not necessitate a rise in CPI, it sure does increase it's probability and I sure wonder what effect that will have on the markets this time round. Will the bulls be resilient enough to hang on?

TECHNICAL ANALYSIS
Both the Dow and the Nasdaq composite staged a weak follow up to the Dragon Tail Formation which I mentioned in yesterday's analysis. It was a marginal up day, in fact, a neutral sideways day from a technical point of view, with extremely weak volume. What does something like this tell us? Simply, UNCERTAINTY. This uncertainty is not uncalled for as we are now heading into some heavy weight economic release along with a Quadruple Witching Friday tomorrow (see yesterday's analysis for explanation). Such a day requires technical chartist like us to look at a slightly longer time frame in order to see the real picture and in this case, for short term analysis sake, I choose to go on the 2 days timeframe. The 2 days timeframe have been an excellent time frame for short term swing trading and momentum analysis as it basically erases all the one day sideways movements which serves to be nothing more than distractions. Looking at a 2 days time frame, we still see the dragon tail formation on the Dow on rising volume with stochastics rising out of an oversold position steadily. All in all, still a pretty bullish outlook. Today, we might probably still see the market going sideways or even slightly inclined to downside as most Fridays tend to be (see US Market Trivals). Is the Bear going to hybernation at last? Would its last Yawn still cause a shakeup and would that shakeup wake the bear up again?


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Major Indices Form Key Reversal Signals!

FUNDAMENTAL ANALYSIS
After trading half a day in the ditches, markets found new strength and leadership
from the Financial and Technology sectors, pushing the Dow to close up 57.44 and the Nasdaq composite to close up 21.17. Financials took the bottom from the market yesterday but their swift recovery today took the market off a dangerously low intraday low back up into the green. All these are happening ahead of tomorrow's heavy weight Jobless Claims and PPI numbers, indicating some positive investor sentiment to the outcome of these numbers (see Economic Calender). With the Quadruple Witching (stock options, stock futures, index options and index futures expiring in a single day) Friday drawing even nearer, we can expect more volatility in the markets as it brews up the perfect volatility storm.

TECHNICAL ANALYSIS
A very surprising day at the markets today indeed. I did expect a few days of sideways trading or a few days of slightly upwards trading following a huge ditch on Monday but what I never expected was that it may turn out to form one of the strongest bullish reversal signal that I have ever used professionally. This is what I call a "Dragon Tail Formation". A dragon tail formation is a formation consisting of one huge down candle and then a small up candle with a very long wick or tail at the bottom. Such a formation is extremely bullish as it indicates the market's ability to not only turn up positive but to turn up positive from a deep intraday negative stance. In Chinese mythology, when a dragon appears in your fields and rises to the skies, your family is in for great fortune. That is why the longer the "tail" is, the more powerful the signal will be. A dragon tail formation at this oversold position and on rising volume makes it even more credible. In fact, Worden Brothers calls today a "Key Reversal Day" and here is what they say...

"A configuration we know as a "Key Reversal Day" formed today in each of the Major Averages. Add the fact that volume increased markedly for these averages, and we have all the ingredients for a "Key Reversal Day." Which are: (1) A decline plunges to a new low. (2) It reverses to the upside and moves above the preceding day's close. (3) Volume for the day increases, preferably to a pronounced extent. (4) The final close is preferably at or very close to the day's high...."

I see the bull starting to wake up right now and would love to see a followup to this tomorrow in order to confirm the signal.


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Stocks Surrendered A Week Of Gains In A Single Day!

FUNDAMENTAL ANALYSIS
Stocks completely went flat on the face and surrendered an entire week's gains in one day today! The Dow went down 242.66 points and the Nasdaq composite went down 51.72 points! Decliners led Advancers 8 : 1 in a broadbased stock market earthquake. This landslide happened right after a report from the Mortgage Bankers Association which showed delinquencies among subprime borrowers hit 13.3% in the fourth quarter. That was the highest rate in more than four years. This report hit the financial sector badly as the S&P Financial sector ditched 3.2%. Even the continued slide in oil price do not seem to pump in any more optimism as investors scattered like scared rabbits. Basically what these numbers are doing is to bring out the fear that the economy is indeed doing badly and that the Greenspan Prophecy (of a recession by the end of the year) might indeed be a reality. There are more numbers coming out this week... will the CPI and PPI numbers calm the nerves of our nerve shaken investors?

TECHNICAL ANALYSIS
Well, again, this ditch didn't come as much of a surprise for followers of my blog, did it? As I have mentioned yesterday, with the "rally" so far being weak and unenthusiastic plus the Dow coming up against a strong 100MA (100 days simple moving average) resistance level, the markets might just tumble back down and regain its bear trend. Looked like the 50/50 chance fell flat on the down side. That is why traders must never go on hunches but look for objective evidences and trade according to what is actually happening. Option traders straddling on my advise yesterday to go both long and short should be laughing your way to the bank by now. With such a huge single day drop, it will not be strange to see the market going sideways forming small candlesticks over the next few days. This is also supported by the weekly charts showing both the Dow and the Nasdaq composite on their respective 30MA support levels. With such a strong break to downside on rising volume, I see that the bears have definitely taken over and that the market will most probably continue to drop after that few sideways days. So far, the market has followed a classic mid term bear trend pattern by going down strongly, pulling up its loose sock slightly, before going way down again. As such, we might see a testing of their respective 200MA at about 11800 and 2300 soon.



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Stock Market Landslide Continues...

FUNDAMENTAL ANALYSIS
In this fear driven market, few people ever pay attention to any fundamentals except everything negative. Markets continue to slide today carrying with it the early morning buyers. Early signs of buying are quickly erased by a merciless and swift mob of sellers while short sellers laugh their way to the banks. Well, in all market conditions, there are always an equal number of winners and losers in terms of dollars and cents. There will therefore always be cryers and laughers. It is again difficult to attribute this fearsome correction to what Ex-Fed Chairman Alan Greenspan said about possible recession by the end of the year as global markets too lost over $1.8 trillion in a week. It was like the doomsday has arrived for the global stock markets. Well, corrections always make people feel like its doomsday and that there are no end to it. Normal traders should already be out and await a future rebound and sophisticated traders should already be in the short.

TECHNICAL ANALYSIS
No surprise today as markets extend their losses. All short term indicators still suggest a strong downwards momentum even though the Dow and the Nasdaq composite are both in their short term oversold condition. Well, as my mentor used to say, the Bulls take the stairs and the Bears jump out of the window. Both indices are coming up against the short term psychological support level that I suggested yesterday. This correction seems to reflect the same patterns we saw back in the May 2006 correction and with mid term indicators still showing a lot of room to downside, I believe we will see a breach of the short term psychological supports to test the respective 200MA support. Option traders should already be holding on to puts or in negative delta positions by now and join the rank of the laughers.

Long Awaited Stock Market Avalanche Begins!!

FUNDAMENTAL ANALYSIS
It was almost by concensus that markets around the world, including the US market plunges after China's Shanghai Index plunges by over 8% in a single day. Dow plunged over 416 points in one day and could lead to the long awaited correction in the US Market. We have not seen this kind of single day drop since Sep 2003. Alan Greenspan's speculation of a recession served as a catalyst to this correction and is followed up by today's correction in the global market... everything seems to tie in nicely for the kind of correction everyone's been waiting for. Sit tight everyone!

TECHNICAL ANALYSIS
There was no doubt at all what happened today! It was surprising, strong and without a trace of doubt... the correction HAS BEGUN! Both the Dow and Nasdaq composite broke strongly to downside, out of their neutral channel on strong volume. This is definitely a concensus move and anyone still in today will be dying to get out tomorrow. All technical indicators are screaming for us to get out of longs. I believe we should see a testing of the 200MA at 11775 before the Dow pullup a little. All traders speculating for a rebound should know that a Dow rebound after a 3+% drop usually happens near a bottom, not at the peak of a bull trend. I will not bet on it personally. Well, My Educated Hunches completely changes today.




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Markets Ditch On Greenspan's Outlook

FUNDAMENTAL ANALYSIS
Markets took a blow today as ex-Fed chairman Alan Greenspan suggested that there might be a recession coming later this year. This is further compounded by oil prices holding steadily above $61. Higher oil price put pressure on the transportation sector as usual with decliners leading advancers by 4 : 1. However, the internals for the market wasn't bad with advancers parring decliners. The Chicago PMI and ISM this week could still help lift the markets if they turn out well. If oil prices continue to climb on the higher demand due to snow storms, it could end the current rally and put the market into a correction.

TECHNICAL ANALYSIS
As expected, the Dow corrected right down to the 30 day moving average line and looks poised for another rebound. No surpise on that front. What will seriously surprise me would be if the Dow should close significantly below the 30 days moving average tomorrow on significant volume. That could spell the start of a Dow correction. The Dow has closed slightly below the 30days MA line only once on 28 Nov 2006 ever since this rally started. That was done on low volume and not by a significant margin which did not end the rally then. I think we should see a rebound to new highs soon. On the Nasdaq front, the Nasdaq 100 failed to make a resistance level break as expected and has brought the Nasdaq composite down for a second straight day. With both the Nasdaq composite and the Nasdaq 100 still in overbought condition, we could see a testing of the 50 days MA soon. That would set the Nasdaq composite back down into its lateral channel again. I was so close to changing my hunch for the Nasdaq composite to a bull trend but now, I was right for being just a day more patient. Nasdaq remains plain water to me.


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Stocks Mixed For a Second Straight Session

FUNDAMENTAL ANALYSIS
Stocks closed mixed once again today as rising oil prices continue to dampen sentiments in the market. Oil price has seen the light of day once again as it rises above its psychological resistance level to close near the $61 level. Oil has closed this high for the first time since December and certainly looks like it could go higher with all the excuses it needs in place... Increased tension with Iran, the upcoming driving season, lower petroleum inventory and hedge fund moving into commodities. Higher oil prices leads to higher production prices and hence higher retail prices, things that the economy definitely don't need at this point in time. Higher oil prices may not have an immediate impact on the stock market eventhough in the long run, it certainly will.

TECHNICAL ANALYSIS
Indices continue their expected and normal route of advance today as the Dow pulled back slightly for another day and the Nasdaq composite slowed its advance forward. It is certain normal for the Dow nowadays to pull back for up to 3 days before surging to another new high, forming yet another step in its staircase formation. In fact, it could go all the way down to its 30 days moving average tomorrow, let's not all be surprised or be put into a panic. The Nasdaq composite slowed its advance as the Nasdaq-100 comes up against its 1850 resistance level. As I have mentioned in my post yesterday, I expected the Nasdaq-100 to find the 1850 resistance level a strong one as it is already in the deep short term overbought region. The Nasdaq-100 and the Nasdaq Composite are displaying a huge spinning top signal at the overbought region and that is usually a very bad thing. Such huge spinning top formations usually decompose into an evening star formation, which is a strong downside reversal signal. Today is again critical to the Nasdaq composite. There is no telling if it will make an advance tomorrow but chances are that it may be more inclined to downside as the Nasdaq-100 doesn't look ready for a topside break yet.


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Stocks Mixed On High CPI Numbers

FUNDAMENTAL ANALYSIS
Stocks opened deep in the mires and closed mixed after CPI numbers showed a "larger than expected" increase in January by 0.3% (analysts are expecting 0.1%). While the CPI numbers did spark some concern that the Feds may be overly optimistic about the results achieved by the rate hikes so far, markets still ended with pretty decent internals with advancers parring decliners 1 : 1. I am impressed with the overall bullishness in the markets today as it held up such great internals despite a barrage of spirit dampening releases and Oil price surging to close slightly above $60. Today is the peak of the storm for the week and with nothing more to shake the markets this week, I would expect the bullishness to return again tomorrow.

TECHNICAL ANALYSIS
No big surprises today as the Dow dipped slightly as it always had before rebounding into new highs and the Nasdaq composite staged a weak followup to the resistance level break of yesterday. I did not see the kind of strong follow up in the Nasdaq composite today as volume was still mediocre. This does not convince me yet that the Nasdaq composite is ready to trade above the lateral channel within which it has been trading since November 2006. I do however agree that its current sentiment and momentum remains strong to upside. I am not seeing a significant decline in upside momentum in the Nasdaq composite yet as all momentum indicators remain strong. With such strong upside undercurrent, I would expect to see the kind of follow up tomorrow that will change my sentiment on the Nasdaq composite.

If I am so "confident" about the Nasdaq composite, why am I not indicating "Bullish" yet? Well, that is because the Nasdaq 100 is still a distance from its 1840 resistance level and is already into the short term overbought condition. It may be difficult to stage a resistance level break from such overbought condition and if it fails and dips again, it could bring down the Nasdaq Composite too.

That is just me... I am the kind who wants to see real evidence instead of going on a mere hunch. That being said, the Nasdaq composite is still long term bullish as it formed a bull flag formation. We saw similar bull flag formations before in May 2005 and December 2005 before and it usually followed up with a short but strong surge upwards. I am looking for signs and evidences for the beginning of the surge so as to make a move. Thats the difference between swing traders like myself and other long term investors.

I remain Neutral on the Nasdaq composite and Bullish on the Dow.



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Stocks Gained On More Good News...

FUNDAMENTAL ANALYSIS
Markets continue its bullishness this week as oil prices continue to drop and Fed official's comments that the housing slump could be bottoming soon and will therefore not drag the economy down. Along with these great market moving news, a couple of great earnings release today also helped the market along. A bullish tone continue to persist in the markets as the earnings season nears its end and that is definitely a great thing. The Consumer Price Index due this Wednesday is going to validate what Uncle Ben has said about controlled inflations and all that optimistic talk last week. If this number fails to impress, it would definitely have a negative impact on the market as everything Uncle Ben said will become doubtful. Analysts are expecting 0.1% versus a 0.5% last month.

TECHNICAL ANALYSIS
Nasdaq made the all important 2500 break today at last! Even though the break was not supported by a very strong voume, it was at least done on rising volume. A steadily rising volume still does speak a lot about a strong trend. I would like to see at least a follow up to this break tomorrow on rising volume to confirm the change in trend. As for the Dow, there was again no surprises as it continues to move sideways with a bullish inclination, completing yet another step in its staircase formation. I would say we should see yet another new high in the Dow by end of this week or early next week.


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Stocks Extend Gains As Rate Hike Looks Dim...

FUNDAMENTAL ANALYSIS
The Dow made another historical high today as more evidence to Uncle Ben's claims surfaced in today's economic reports. What are these evidences? A big jump in unemployment last week, a record high trade deficit, a death drop in industrial output, a weaker than expected manufacturing in Philadelphia, continued housing slump...

With the economy slowing and weakening at this pace, surely there are no reasons why interest rates should be further raised. The only question is, what matters more to an economy? Higher interest rate? A weaker economy? Even Uncle Ben couldn't answer to that question. So far, Uncle Ben's so caught up with trying to tie down baby boomer's money in the markets by giving investors exactly what they want to hear and see that few questioned or answered to these fundamentals. Seriously, what is actually going to cause severe damage to the US economy is the large scale baby boomer drawout looming in the horizon and by giving them a reason to continue to keep their money in the markets is certainly one way to delay the inevitable.

TECHNICAL ANALYSIS
No surprise today as markets continued its advance at a slower pace. The Dow looks like it is ready to move sideways again in preparation for yet another step in its staircase formation. Volume of trade is significantly lower today indicating a lack of follow up to the rally yesterday. This is hardly surprising as that is the way the Dow behaved since the rally begun. Tomorrow is going to be a critical day for the Nasdaq Composite as it has reached the 2500 resistance level at last. Tomorrow will reveal if it will make a break and begin a bull trend or not. Things still look good for a break as short term stochastics is still a small jump away from being overbought and MACD continue to show growing upside momentum. Even though that gave me enough reasons to believe that Nasdaq will at least make a short term surge, I will not change my sentiments untill I see actual proof of a break.


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Valentine's Day Present From Uncle Ben...

FUNDAMENTAL ANALYSIS
Markets continued its bullishness today as Fed Chairman Bernanke (Uncle Ben) took the bench and painted a rosy picture for all investors to lavish on. Here are some market moving quotes:

"inflation pressures are beginning to diminish."

"likely to foster sustainable economic growth and a gradual ebbing of core inflation."

"Overall, the U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes,"

Uncle Ben sounded extremely optimistic and is a great contrast from what we have heard from the Feds so far... this makes the intent highly suspicious. Well, no matter what the intent may be, this is exactly the kind of things investors love to hear from a man like Uncle Ben... no matter if it be true or not. This, along with a drop in oil price due to healthy oil inventories, helped to push the Dow to yet another historical high. There will be more heavy weight economic release along the week which should either give emphasis or diminish what Uncle Ben just said. Realistically, we should not be getting a rate cut anytime soon as core inflation numbers are just beginning to go down. I seriously don't think the Feds will start to make any adjustments when their efforts has just begun to show up.


Technical Analysis
The Dow is at new highs! Did it come as a surprise to you? Certainly not to me. Here's my quote from yesterday:

"If the pattern holds, we should see a new high by tomorrow."

And indeed, we see the Dow at new highs today, beautifully and faithfully completing yet another step in its staircase formation. It is also interesting to note how nice economic news seems to tie in nicely with every step that is formed in the Dow chart. The Nasdaq composite has been faithfully neutral for a few days and have been off my focus for a while, today, the Nasdaq composite made a comeback at last to challenge the 2500 resistance level. The last time the Nasdaq composite made a trip this high up, it is already in the deep overbought condition. This made it very difficult to have any energy left to break a resistance level. This time round, the Nasdaq composite is still a mile from being overbought and with growing upside momentum on growing volume, it looks like it just might make it this time round. A high volume break above the 2500 level with a nice follow up will bring Nasdaq out of its current neutral trend into a short term up trend. As for the Dow, it is almost certain to see it start to go sideways again tomorrow or the day after. So far, both indices has stayed true to their patterns and my sentiments remain Bullish for the Dow and Neutral for Nasdaq.



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Alcoa Injected Excitement Into Sluggish Market!

FUNDAMENTAL ANALYSIS
Sometimes I would rather call Fundamental Analysis, "Sentimental Analysis". :)
Market sentiments took a 180 degrees turn today as the Dow surged 102 on reports that 2 seperate companies are looking to take over Alcoa (AA). AA surged 6.38% in a single day on this news ending up $35.00. These are the kind of news that sends every investor rushing into a single stock. On top of that, oil prices also surged by almost 2% today, lifting the Energy sector to a 3 : 1 advance. All in all, the markets has started out very encouraging this week. Whether this momentum continues or not really depend on how well the heavy weight economic data goes for the rest of the week and what sentiment Chairman Bernanke decides to throw into the market. The market remain highly sentimental and easily shaken by the slightest indication of inflation and weakening economy. Already U.S. trade deficit has widened in December to $61.2 bln in a report yesterday but has so far been ignored amidst the Alcoa excitement. If Bernanke's testimony and the rest of the data this week prove to be weak, investors will start to take it seriously. Today, participation in the market is not impressive either as volume remains slightly below average for the month. This shows that a lot of investors are still sitting on the sidelines waiting for the heavy weight economic comments and data to hit the wires. Let's keep our periscopes up while bathing in the excitement.

TECHNICAL ANALYSIS
Today is a day which is both surprising and not surprising. What wasn't surprising was the rebound in both the Dow and the Nasdaq composite. They behaved as we have expected and therefore is not surprising. What was surprising was the readiness at which it happened. Even though I expected a rebound in both indices, I really expected the Dow to do so only after another day or two of crawling along the 30 days MA and after the Dow's short term stochastics has crossed below the 50 line. Well, with today's surge, the Dow has once again begun the formation of yet another step in its staircase formation. If the pattern holds, we should see a new high by tomorrow. Eventhough all technical indications remain healthy to upside, I do see a negative trend developing in the Dow. The Dow's rally so far has showed up on the ADX as a healthy, growing bull trend until 27 Nov 2006. Since that day, ADX has been showing a really mixed and uncertain trend and since that day, the Dow's rally has slowed down and the gradient of its 30 days moving average has declined significantly. The result of which is an extremely choppy market which makes it very hard for short term technical swing traders to take a swing at a home run. If this pattern continues, it will not be surprising to see the Dow slowly and stealthily degenerate into a neutral trend. For now, my sentiments remain the same... Bullish on the Dow and Neutral on Nasdaq.



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Markets Tremble Ahead Of Bernanke Testimony

FUNDAMENTAL ANALYSIS
Markets follow up on last Friday's bearishness today ( Dow - 0.22%, Nasdaq - 0.38% )ahead of Fed Chairman Bernanke's testimony in front of the Senate and House representatives. After all that hawkish talk by Fed representatives last week, all investors will be peeled to listen out to Bernanke this Wednesday and Thursday for any further clues as to what the Feds might do next. A week of important economic data ahead, dropping oil prices bringing the energy sector down, widely held sentiments that a correction is at our doorstep and volatility caused by an option expiration week, all act together to form the bearish undercurrent that we see now. Oil took a hit today and closed below $58 at $57.90. That caused a broad based decline in the Energy sector with decliners leading advancers 5 : 1. This week's PPI and Consumer Sentiment numbers would really be the kill or cure of this market now as investors need to see that inflation is under control and consumers are happy before any bullishness will return to the markets.

TECHNICAL ANALYSIS
Back to my favorite section. :) Sometimes life can be very simple. Just as you would gauge the health of a fax machine by the fineness of its print output and the health of a light bulb by the brightness and consistency of its glow, we can gauge the health of the market by its charts too.

As I have mentioned yesterday, the main things to watch out for this week is whether the Dow and the Nasdaq Composite hold or break their 30 days moving average support level. After today's 0.22% drop in the Dow, the Dow continues to hold above its 30 days moving average line with significantly lower volume. The Dow may trade atop its 30 days moving average for a few days before continuing its staircase like formation to new highs. We saw the same action on 27 Nov 06 and 25 Jan 07.

How about the Dow popularly being "Overbought"? Well, seriously, how do we determine overbought in this case? The Dow is used to trading in the deep, long and short term overbought condition with very little retreat or correction. That would mean that bailing out simply because it is "overbought" on the RSI or Stochastics do not make very good sense in terms of profit maximisation. The weekly and monthly time frame continues to show higher highs and lows with no clear indication of a correction yet. The 3 days drop in the Dow has also helped it get off its short term overbought condition and that is forming the stage for another possible rebound. Commonly, we see the Dow rebound from its 30 days moving average once the short term stochastics cross down below the 50 line. At this point of time, the Dow's short term stochastics is still a small leap to the 50 line. That gives more evidence that the Dow will continue to trade sideways along the 30 days moving average while setting its stochastics back down to the 50 line at least.

So, what about the "Bearish" sentiment so far? Well, a bearish sentiment reaches a concensus and really affects the market when we see a ditch along with a surge in volume at a critical support level. After that, the bears should continue to follow up with a few more days of drops along with rising volume to set the bearish engine into action. This was exactly what I saw during the May 2006 correction. So far, I saw neither a neck breaking, support level jarring ditch nor do we see rising volume supporting the move to downside.

Now, am I saying that the market will rise infinitely? Definitely not. I have defined the exact beginning of a correction as "A break below the 30 and 50 days moving average on high and rising volume". If that happens, we might see a correction as deep as a testing of the 100 days moving average.

Now, what about fibonacci? Well, I still think that is a highly subjective psuedo science that requires the most developed minds in predictive technical analysis to execute reasonably... guess I am just not that highly evolved yet...hahaha. (Seriously, if any of you readers are good Fib analysts, I sincerely invite you to co-author this blog. Just email me at founder@mastersoequity.com Please)



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An Exciting & Critical Week In The US Markets....

This is going to be an exciting and critical week in the US markets...

This is going to be a week full of important economic releases which every investor will be watching after the Fed has everyone on their toes with their speech last week...
(For free weekly market calendar, put/call ratios, news headlines and more all on ONE PAGE, please visit and bookmark Option Trader HQ)

This is going to be a week where the Dow and the Nasdaq composite decide if their 30 days MA support level still hold or not. A high volume break below their 30 days MA this week could mean that the correction that everyone has been waiting for is here at last...

This is going to be the week where MSFT (after a 4.01% decline last week!) decides if it will halt its decline at the $28.00 Support Level or not...

All these and more will be revealed to you as I watch, comment and analyse the markets and MSFT this week...

STAY TUNED!




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Winter Chills Set In On The Bulls...

FUNDAMENTAL ANALYSIS
Markets took a beating as a snow storm takes New York city today. The chill seems to have set in on the markets as well as the Dow took a 0.45% beating and the Nasdaq composite erased 7 days of gains, collapsing down 1.16%. Everything in the world seems connected in all ways. A comfortable warmer winter gave the markets a boost and when the snow come back, the markets go into hybernation too. This avalanche was due mainly to a severe letdown in the Financial and Tech sector as borrowing rates increased. Let us not forget that the Financial sector contributed to 8% of the 11% growth in the S&P500 and a correction in the financial sector will certainly make itself heard. Decliners in the Financial Services sector led advancers by more than 3 : 1 and decliners in the Nasdaq 100 led advancers by more than 8 : 1! The Fed's hawkish statement underlying that inflation is still a concern further depressed investor sentiments. Next week is another week of economic releases and that could be another reason for the bail out today. Investors would want to play it safe by taking profits off the table before the uncertainty set in next week.

TECHNICAL ANALYSIS
I was surprised today at how readily the markets corrected today by such a great magnitude. I expected the Dow to take a slight dip before it climbs to new highs and that the Nasdaq composite will struggle against its 2500 resistance level but what surprised me was the magnitude and the readiness at which it happened. Well, what was again not so surprising was that the markets are used to doing things like that anyways. That is why technical traders like us read the overall chart patterns and not get all caught up with what happened on any particular day. Both the Dow and the Nasdaq Composite closed near their 30 days moving average support level, which are still healthy. As the indices are still only very slightly off their short term overbought condition, it will not be strange to see Nasdaq trade sideways a little for a few days along the 30 days moving average before mustering enough energy for another charge. As for the Dow, I see that it has completed another step in its staircase formation and is ready for a rebound to new highs and we might see that happen within these few days. But does that mean that the Dow will continue to rise endlessly? Definitely Not. So what will the first indication of a correction be? A Close Below The 30 days Moving Average.


Technical Charts By Worden Brothers TC2007





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Stocks Show Resilience In Face Of Higher Oil Prices & Bearish Housing Outlook...

FUNDAMENTAL ANALYSIS
Stocks were down just marginally today as oil prices break the $60 psychological resistance level and reports that home prices have yet to reach a bottom. Stocks have been incredibly resilient in the face of these traditionally market moving bad news this time round as advancers par decliners 1 : 1. Stocks hit today are from the Materials & Construction sector as stocks like TOL plunged 3.02%. US homes are estimated to be more than 400,000 more than demand can handle and will continue to pose a problem to the supply/demand curve. Frankly, the stock market has been handling the housing crisis well so far as it does look like it is in for a soft landing, as the Feds wanted it to be, even though we are not seeing a bottom just as yet. Giving markets a lift today from its intraday low was oil prices breaking the $60 level, lifting the energy sector. It does look like, so far, that the OPEC production cut along with a higher demand as the winter chills return in a big way is acting together to give oil prices a serious boost. Will this rally in oil prices put pressure on the stock markets?

TECHNICAL ANALYSIS
Ah... back to my favorite section. As a technical chartist, I somehow see more sense from my charts than from the news most of the time.
Again, no surprise today as both the Dow and the Nasdaq composite closed sideways. The Dow formed a "Hammer" candlestick signal today as market forces take it off its intraday lows to close near opening level. A hammer candlestick signal at this level tells me that there is a strong undercurrent to the Dow. This has also helped the Dow get off its short term overbought condition. A hammer signal occuring along with RSI has moving off from the deep overbought region has preceded the Dow climbing to new highs 4 out of 4 times over the last 5 months. The Nasdaq composite remains short term overbought and has started to lose upside momentum in the face of the 2500 resistance level. Seriously, it is difficult for a tired man to fight a giant and is certain difficult for the Nasdaq composite at such deep overbought condition to make a break anytime soon. It could take a short breather at this level before facing off the 2500 level next week.

I see another interesting pattern emerging today... since 14 July 2006, the market has moved completely inversely to the movement in oil prices. However, that pattern was broken on 18 Jan 2007 as the markets rallied along with the rally in oil prices. What does this mean? Does it mean that higher oil prices will now actually be beneficial to the economy and the stock markets?

Technical Charts by Worden Brother TC2007

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Cisco Breaks The 4 days Lethargy In Nasdaq!

FUNDAMENTAL ANALYSIS
Not much fundamentals at work today as the Dow continue to close sideways on a dropping oil price. The Nasdaq composite took a boost from Cisco today as we have predicted yesterday and headed up 0.77%, the biggest single day gain in 5 days. Wholesale inventories numbers for Dec will be released tomorrow. This number tells us how much inventory is left after December sales and tells the tale of how active retailers had been. Although not a major release, it does hint at the health of the economy and with a complete lack of any market moving news release this week, this may well turn out to be quite important. Expectations are for Wholesale inventories to drop from 1.3% to 0.6%.

TECHNICAL ANALYSIS
Again, no surprise today as the Dow continued sideways to form another step in its staircase formation and the Nasdaq composite continued up towards the 2500 resistance level as expected. Both indices remain in short term overbought condition and looking back at past behaviour, it is unlikely to see the Dow surge to new highs until it has moved sideways enough or even ditch slightly to wear off its short term overbought condition. The outlook for the Nasdaq Composite continue to be extremely uncertain. Even though the Nasdaq composite has moved very near to its 2500 resistance level, the Nasdaq 100 is still a distance from its 1840 resistance level on rising upside momentum. The Nasdaq 100, with its growing momentum and distance from resistance level, may well help to drive the Nasdaq composite beyond its 2500 resistance level. Oil prices has failed to break the $60 resistance level and has started to ditch after taking a bang on the head. Even though it will affect the energy sector negatively, it should help drive the rest of the market up. That is again, another plus for the markets. All in all, my sentiment remains the same... Bullish for the Dow and Neutral for the Nasdaq Composite. (until proven otherwise)



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Bulls & Bears In Hybernation Today...

FUNDAMENTAL ANALYSIS
Markets did a scary and surprising ditch mid day before recovering to close marginally higher today. By the end of the day, the mid day ditch proved to be nothing as advancers still led decliners 2 : 1. Bernanke gave his speech today and made no committment nor comments on things that really matter... as expected again in my post yesterday. The prime mover of the tech sector tomorrow will no doubt be the extremely good earnings by Cisco (CSCO). Cisco was already trading up 4.8% in after hours trading after its announcement at about 5pm! With no new economic release to drive the market, great earnings like these certainly takes center stage. There are still more great market moving earnings releases coming up this week like Bank Of America tomorrow and Eastman Kodak on Friday. Earnings are expected to be optimistic throughout the week on holiday spending. Stay tuned!

TECHNICAL ANALYSIS
Markets closed sideways today in lethargy again. The Dow continues to move sideways in order to form another step in its staircase formation and the Nasdaq Composite moved sideways as it moved into a short term overbought condition. I have expressed the same concern yesterday that the Nasdaq Composite is going into short term overbought so quickly and so far away from its resistance level.This, along with unmistakable loss of upside momentum from most momentum indicators, tells me that the Nasdaq composite is not ready for an all out topside break yet. Unless the CSCO rally do something to help the Nasdaq composite tomorrow, I would say that the Nasdaq composite should stay within a 2450 / 2500 trading channel until it wears off some short term overbought sentiments and then stage another rally. My sentiments therefore remains the same... Up for the Dow and Sideways for Nasdaq.


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Stocks Take A Breather After An Exciting Week!

FUNDAMENTAL ANALYSIS
Markets slowed to take a breather today after an exciting week last week. The Dow closed up marginally by 0.07% and the Nasdaq composite closed down by 0.21%. The drop in the Nasdaq composite was due mainly to a severe drop in MSFT after comments was made that the sale on Window Vista do not justify the current high share prices. With no big releases to move the market, investors may be looking forward to more of Benanke's speeches tomorrow. We all know that Bernanke's speeches are crafted to sound hawkish at all times so that markets are not affected, so, its really down to the sentiments that are already within all investors to interpret what they hear. My take is that whatever he says will not have a lasting effect on the stock markets.

TECHNICAL ANALYSIS
The Dow and the Nasdaq composite took a break today as they closed sideways. By now, it is obvious that the Dow is forming yet another step in its staircase or saw teeth formation and we should therefore see another new high by the end of the week or early next week. Nasdaq took a breather today as it continued its journey to the 2500 resistance level. Although still a distance from that level, it is already displaying slight indications of short term overbought condition. Usually when prices are this close to resistance level, I would ideally love to see relative indicators and momentum indicators slightly off the short term overbought levels so that it has more technical energy to stage a breakthrough. From what I see of the Nasdaq composite now, it may still have a little problem at the 2500 level once again. This is compounded also by a slowing energy sector as oil prices come against a strong $60 resistance level and have started to show weakness. All in all, my take remains that the Dow is in a Bullish Trend and the Nasdaq composite remains in a Neutral Trend.




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