The Rebound Begins... FOR REAL!!!

Like I said, I have never seen a real market crash before and this is no exception. The Dow formed an extremely important signal yesterday... a dragon tail formation with SELLING CLIMAX! The problem why the dragon tail formation back on 10 Aug failed to stage a full scale rebound like it did on 14 March was that 14 March was also a SELLING CLIMAX! A Selling Climax is a huge volume surge in a single day at the bottom of a down trend. A selling climax occuring on top of a dragon tail formation makes the rebound even more possible! Want more strong support? This set of signal is occuring right on top of the 200MA, which again is a strong support line. Also, when I introduced the dragon tail formation to the world on 14 March, I mentioned that the signal is stronger as the tail is longer... now, look at the dragon tail formation today... is that a long long long tail or what???!!! :) Ok, there are a lot more technical indications supporting this coming rebound and I am not going to go into them one by one. In short, this is definitely a key reversal day, so, good luck to all of you who still believe the market is going to crash!


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Black and White Brothers Week...

Markets closed sideways today (Friday) again amidst all the chaos created by the quadruple witching, consumer confidence numbers dropping to 6 months low and CPI rising 0.2%. All these numbers continue to tell one tale... that the Fed will not be cutting rates anytime soon. In fact, some analysts are saying that fundamentals do not matter anymore but what the Feds are likely to do. Even though I would agree to that for the short term, fundamental economy strength still matters in the long run.

Some readers may ask, "Obviously stocks were down today, why would you say the markets closed sideways?". Well, simply if the Dow closed within the range of the day before, it is essentially a sideways day as it has merely vibrated within where it did the day before.

Looking at the weekly charts, we see that the Dow and the Nasdaq composite is once again forming "Black and White Brothers" formation atop their respective 30MA. (Please read my post on 21 Dec 2006 for explanations... http://sharemarketcomments.blogspot.com/2006/12/daily-us-market-comments-21-dec-2006-by.html ) There is something different about the black and white brothers formation this time round... a typical strong B&W brothers formation is a closed candle followed by an open candle. This time round, it is an open candle followed by a closed candle. Such a formation is still bullish but it may form a down candle next before rebounding to new highs. This signal is further supported by the fact that the Dow has made a perfect double bottom setup since the dragon tail formation appeared 3 days ago. A double bottom setup, or what is commonly known as a "W" setup, has historically preceded many important rebounds.

The bears certainly look like it is going to sleep with a glitter of conciousness still remaining.


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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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Stocks Gained As Oil Corrects Below $60...

FUNDAMENTAL ANALYSIS
Stock markets gained as oil price corrects below the nerve pricking $60 once again. The Dow gained by 0.34% and the Nasdaq Composite gained by 0.62%. Oil price hit below $59 when OPEC announced that they will not be cutting production. This will relieve oil prices in the short term and give the stock markets a little boost but with growing demands all over the world and especially in China, not increasing production is already "cutting" production in a net effect kind of way. Until Cambodia become a major oil producing country in Asia, prices will remain bullish for oil. Yesterday's gain has been the result of a very weak internal. Advancers led decliners by a very very lean margin of almost 1 : 1. Volume was also very weak, especially in the Nasdaq composite, indicating that many investors are now taking a back seat from this "rally" to see what will happen. For me? I am neutral on the market for now. Existing traders should hold both longs and shorts and yet-to-be-traders should stay out until the next trend becomes clear. I am actually more neutral-bearish if you read my picture carefully. :) That means that even though I am neutral now, I am very likely to switch back to bearish very soon.

TECHNICAL ANALYSIS
Markets gained very weakly today. By weak, we mean that there is a lack of strong participation in the market and that prices moved very much within the range of the previous day. We saw that even though both the Dow and the Nasdaq composite gained yesterday, both indices actually closed within the trading range of the previous day. This definitely do not give it much bullishness. The Dow has also pulled up against its 100 days moving average resistance level. If we see a high volume break to upside above that level tomorrow, I would say the Dow is ready to regain its bullish outlook. With stochastics still a distance from being overbought, it does have the potential to make such a break. So far, this "rally" has been weak and discouraging, especially with so many market moving releases due this week. It is going to be an uncertain week ahead with very uncertain outcomes. The markets may make a break and rally from this point or it may simply end its pull up and laspe back down into its bear trend, both possibilities are 50/50. Be cautious.


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A Critical Stock Market Week...

Last week was somewhat of a positive week with the Dow gaining 1.34% and the Nasdaq Composite gaining 0.83%. That was what I called last week as "Pulling Up A Loose Sock". A loose sock starts to drop when you try to do the real work of walking. This week, we will see the real work of some heavy weight economic releases like the CPI and PPI (please see Economic Calendar ). These numbers will either tell us that the economy is not doing as bad as we thought it is last week and give some support to the little pullup we saw last week or that they will support the view that the economy is doing badly and therefore Greenspan's recession prediction might just come true, ending the pullup and allowing the sock to drop again.

Looking at the weekly charts for both the Dow and the Nasdaq composite, we do see some reason for optimism. Both the Dow and the Nasdaq composite has rebounded from their weekly 30 MA support and has also retreated from their mid term overbought level for the first time since the July rally begun. This is a pretty good mid term reversal setup. Being a mid term setup, we might not see an immediate reaction to upside but probably a few days up and down before finally gaining strongly to upside.

Again, we shall let the market do the talking this week. My hunches remain bearish for now.



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US Markets Pulling Up A Loose Sock?

FUNDAMENTAL ANALYSIS
US Market continue its advance today carried along by the global market. Never before have I seen such close and perfect correlation between the US Market and the rest of the world. The US Markets does show a significant correlation to many global markets but never at a degree where it goes up when they go up and down when they go down. Even as the US continues its efforts to create more favorable economic conditions for itself in Asia, few fundamental reasons emerged so far as to provide any real optimism. A gapping trade deficit with China remains one of US economy's greatest worry. US is also trying now to play "consultant" to Cambodia as the once poor country paves its way to becoming the next oil provider. Let's hope the US builds good business partners around the world soon or else investors should start to trade short to mid term and not put too much hope in a hold and pray strategy.

TECHNICAL ANALYSIS
Markets advanced yesterday in what looked like a follow up to the morning star formation I mentioned 2 days ago, however, it looks to me more like it is puling up a loose sock, an effort in vain. A follow up, especially at such a critical juncture, should be backed by a strong market concensus in order to ensure that it is a trend reversal and not a temporary pullback. Such a market concensus is displayed in a good advancing volume at critical reversal points. However, what I saw in the Dow was a lot of volume going both ways yesterday resulting in a sideways close and then an advance today on declining volume, indicating the interest of a decreasing number of participants. In fact, the Nasdaq composite closed lower than its open, resulting in a closed candlestick, suggesting a lack of bullishness, with volume continuing its decline. I fear what we are looking at now is not a trend reversal but a classic pullup on a bear trend. No trends move continuously in one direction only. All trends are marked with 3 to 10 days of pullbacks against the trend and this may be one of them. My educated hunches remain bearish. Swing traders may trade this pullup but always be ready to go back on the short side.



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Bulls & Bears Locked In A Tie...

Bulls and Bears were tied today as markets ended marginally lower in a sideways movement. There was almost no fundamental reasons behind the action we saw today, purely the last of the bears struggling with the new bulls, resulting in an almost neutral day backed by a volume surge. Even though the market didn't close up, the bulls have held their ground and still made a higher high and a higher low... a bullish sign. This struggle between the bulls and the bears may last a couple of days more before the market crawls upwards. Yes, I see this as a strong reversal point and that the bulls do have the strength to keep the bears at bay at last, however, I do not think we will see a surge upwards anytime soon but a gradual advance. This is due to the strained geo-policial and economical situation, so I am skeptical as to whether the market will resume the kind of bullish trend we saw previously even if the markets do continue up. Let's allow the market to do the talking...

Morning Star Signals Formed By Major Indices!

FUNDAMENTAL ANALYSIS
Looks like the US Markets and world markets are one family now... one can affect the other. With the pull up in the world markets, the Dow rallied 157.18 points, posting the greatest single day gain since this rally begun in July 2006. Japan's Nikkei stock average closed up 1.22 percent, Britain's FTSE 100 regained 1.32 percent, Germany's DAX index rose 0.92 percent, and France's CAC-40 was up 0.97 percent. Internals were also great with advancers leading decliners by a mile. This rebound is therefore strictly a technical rebound based on investor sentiments...so, lets go look at the technicals...

TECHNICAL ANALYSIS
Today's rebound was surprising and not surprising all at the same time. What was surprising was that I did expect the major indices to test their 200MA before rebounding in my post yesterday and seriously, I did not expect to see it so soon. What was not surprising was these; First, I did mention that both indices are coming up against their psychological support level of 12000 and 2330 in my post 2 days ago. Both the Dow and Nasdaq bounced off these levels. Secondly, I also mentioned that my proprietary option swing trading system, the Star Trading System didn't support this correction with any trades to downside and suspected that this correction is not going to last. However, only one thing failed to please me today. The volume. Major reversal points should be supported by growing volume, like what we saw back in July 2006 when the markets turned into this bull trend. However, yesterday's pullup ended in declining volume instead indicating that there was more interest in the correction than in this pullup. This is not to say that this pullup does not count as it did form the powerful morning star candlestick formation in oversold position at support level. This is a very powerful combination that usually results in a good reversal. So, how would I make sense of this? I would say I want to see a followup on growing volume tomorrow in order to confirm this morning star formation.



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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.

A New Week... Life Goes On...

I paused blogging here since last Wednesday due to a sudden family tragedy... it happened right on the day the Dow made the 3.29% jump (yeah, its got nothing to do with the stock markets really). My grandmother was down on lung cancer and is now in terminal care.

Really makes me think a lot about life and money. My grandmother has been a really wonderful lady who gave birth to one of the most powerful families here in Singapore. Wealth and luxury was certainly not of lack but in the end, her only hobby, smoking, landed her in terminal care at an age which commonly has another 10 more years to go (81 years old). Wealth and health must certainly go hand in hand. Without health, wealth means very little. I hope all traders and investors take care of your health so that you may enjoy the wealth that comes.

Last week was a surprising week to most traders as the Dow collasped 4.22% and the Nasdaq Composite avalanched 5.85%. In fact, global markets corrected everywhere and attributing it merely to the china market is a little pushing it too hard. Global instability has come to a point where it must show up in the stock markets. So far, nothing that happened in the world; Iranian crisis, 3 carrier battle groups dispatched to the middle east, North Korean nuclear crisis etc... has showed up in the stock markets. It really made me feel like the stock markets are hosted on Mars where matters on earth, except for how oil is being traded, affects it.

Both the Dow and the Nasdaq composite has breached their 100 days moving average and looking very bearish. I see short term psychological support for the Dow at 12000 and long term support on its 200 days moving average of about 11750. As for the Nasdaq composite, I see short term psychological support at about 2330 and long term support on its 200 days moving average of about 2285.

There are no signs that this correction is coming to an end yet, however, a strange thing did happen. Usually, with a correction this big, my proprietary Star Trading System would be pouring out an avalanche of bearish trades which we profit using put options, however, this time round, there was almost no signals to downside coming from the system. Does it mean that this correction is not going to last afterall?



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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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An Up & Down Week...

Well, it has been an up and down week which opened with a lot of bullish expectations but ended mixed. The Dow ended the week down 0.92% and the Nasdaq Composite ended the week up 0.72%. The week has been ramaged by an army of bad news trying to stomp down the bullishness in the market like a demonstration gone bad. Higher than expected CPI numbers, surging oil prices, uncertainty in the Iranian front, lowering oil inventory..etc... However, it seems like the bulls are still strong and have held up the Nasdaq composite so far. Next week is going to be a week of many significant economic releases. Could the numbers cause further panic and break the last of the bulls?

Looking at the weekly charts, both the Dow and the Nasdaq composite continue to look extremely healthy. Both indices continue to make a higher high and a higher low this week, which is an indication of strength. One warning sign jumped out at me from the Dow chart though. The weekly ADX, which is a trend indicator, is already above the 50 area, this is an area where we frequently see corrections or a change of trend to a neutral trend. I will be monitoring on a daily basis in order to pin point when and if it happens. Stay tuned...


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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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