Dead Cat Bounce Starts....

FUNDAMENTAL ANALYSIS
More good news today gave fuel to the bulls, bringing the Dow up another 108.44 points. Jobless claims are down another 75k and earnings have been hot hot HOT so far! We also saw a return from bonds back into equities as bond yields rise across the board. On top of that, institutions are also increasingly bullish as indicated by my proprietary Institution Sentiment Meter as funds started moving in to take up positions for the year. On top of all these, a proposed bail out of the bond insurers gave lift to the financials across the board. Short term prospects does look good for the market right now especially with oil prices this low relative to where we were a while ago. The long term still looks bleak as there are certainly many plans to get out of this crisis but nothing firm and no real results yet. The market is also pricing in a 50 basis points cut next week. A 50 basis points cut would definitely help get the economy out of the subprime mess from the bottom up and the bottom is where the real problem lies. Well, with the regulators in such a state of panic, it does hint at more problems to come and yes, this crisis is still far from over but when the end if near, we can be sure that the stock market, as a discounting mechanism, would price it in way beforehand.

TECHNICAL ANALYSIS
Today's a feeble follow up to the nice reversal signal formed by the dragon tail formation 2 days ago. However, with the signal formed up and followed up so nicely, there seem little reason why we should be skeptical, at least for the next few days to a week. As for tomorrow, well, I would be skeptical that the market would go up significantly for a third day in this weak market. 3 significant days up are really rare even in strong markets. By significant day, I mean anything more than a 50 points move up in the Dow Jones.

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!

More Warning Signs...

FUNDAMENTAL ANALYSIS
Yes, more contrarian views from me today as investors enjoy all the hoaxing from the Fed so far. I picked up a few more warning signs today suggesting that all is not that rosy:

1. Fed fund futures are starting to price in a possibility of a 50 basis point cut. Unless the Fed cut by 75 basis points or more, it is likely to disappoint the market.

2. Jobless claim numbers increased this time round by 32,000, bring the 4 weeks moving average up by 5,500. In fact, jobless claim has been rising throughout the year due to structural unemployment as more and more manufacturers move operations overseas. Jobs is what is going to move the market most and contracting employment number is the first signs of a recession. Next week's Job Report (see economic calendar here)is going to be critical. With the jobless claims number on the rise, the Job report has become somewhat uncertain. What is certain is that if the job reports turned out lousy, all the optimism in the market will be wiped out instantly. In fact, much of these optimism this week are due to nothing but a lot of hoaxing by the Feds!

Yes, GDP continues to be extremely strong and grew at the fastest pace in Q3 due to a contracting dollar with exports rising 1% against the Q2 report. However, the dollar is now at a level so low that the Europeans cannot sit by and do nothing anymore. Europeans are rushing to the States for shopping throughout the holiday season, returning with huge duffle bags of cheap goodies! In fact, most of the luxury brands only cost half the price in the States versus in England! Well, free market capitalism solves a lot of problems by itself. With such imbalance, a tilt by the Euro back down to more acceptable and less harmful levels seems imperative. In fact, analysts are expecting a rate cut from the BOE soon. So, what happens when the dollar returns to equilibrium? Exports contract, taking the only strong component in the GDP numbers down with it and erases the only bit of optimism left in the report. This is going to be a prolonged period of uncertainty.

TECHNICAL ANALYSIS
The Dow's reaction rally seemed to have begun and ended all in one week and sadly, it ended where I hate most. The Dow closed right on top of its 30days moving average yesterday with a huge hangman signal in the DIA, suggesting a lot of weakness and a strong resistance level.


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This tilts the probability of the Dow's movement next week in favor of the bears. On the other hand, it is definitely not wrong for the Dow to pullback slightly from here in accordance to the Dow Theory. What is important is what level the pullback goes down to. If the pullback ended higher than the 26 Nov low, a return to a primary bull trend may be suggested. However, if the pullback goes under that low, it will be the start of the "Big Move" phase of a primary bear trend, which means much more downside to come for a significantly long time. Looking at the weekly charts, the uptrend seems intact with the 50WMA providing a strong support. The 30WMA at about 13500 will be critical. If the 30WMA turns into a resistance level which does not get broken next week significantly, it could spell the level where the Dow might just move downwards from. All in all, more reasons to be bearish than bullish... beware.


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Back To Take It All Back...

FUNDAMENTAL ANALYSIS
Disappointing is the word to use on retail investors these days. See what happened last Friday when retail investors are queuing in front of the marts instead of the exchanges and professional trading takes over? Yes, a huge up day! In fact, institution sentiments continue to be optimistic as indicated by my Institution Sentiment Index and many institutions are now seeing value acrossing the board! What happened when retail investors came back today? No wonder every academia is pushing for the institutionalization of investment! There are simply too much sentiment and too little intelligence in retail investors today! All these decline today were despite a huge Black Friday sales increase by retailers and the Saudis announcing a crude output increase in order to stem the high oil prices! Furthermore, the Fed is actively taking steps before the next meeting to inject liquidity into the banking system through a 8 billion dollars 45 days repo! Yes, 45 days! When was the last time the Fed did that? But what happened in the end? Investors still sold off like a scared bunny. Yes, bond yields are lower across the board as investors exit the equities market in favor of the treasury market but the gradient of the yield curve still suggests that investors continue to believe that inflation will be gradual and that the economy will develop normally! Recession? What recession? Such disgusting pessimism always prevail near market bottoms. Everyone cook up horror stories and then suddenly the market rallies and leaves everyone hanging. What we are seeing is a complete over reaction and over pessimism which is usually a contrarian indicator on itself. Tomorrow's Consumer Confidence numbers are not likely to do much for the market... we need to see whether the bulls or the bears are in control. As usual, I believe in keeping America great and I believe that open market capitalism is the best path to prosperity and someday, when the Dow is at a million, you want to pat yourself on the back knowing you believed in it this early. :)

TECHNICAL ANALYSIS
The Dow's trend line continues to get depressed today in a rare and brutal rough em up pattern that I have not seen since 2001. Analysts may argue that this is the lowest close since April but my take is still that the Low of August is still very much intact and that is the 12517 level. 2 most important words in technical analysis is "PRUDENCE" and "SIGNIFICANCE". We are not seeing a significant breach of the most prudent support level yet! I think we should get a reaction rally very soon as this market has gone too far down too fast and the quality and behavior of the reaction rally is going to be the most important indication of the primary trend.

Welcome To ThanksGiving Week!

First of all let me give thanks to all of you who have been faithfully following my blog and analysis. :)

This is a holiday shortened week where we are likely to see a stagnant market even on Friday as everyone extends their holiday through the weekend. Coincidentally, this is also a week that does not have much in the way of heavy weight news release (see economic calendar). Investors will be looking forward to indications of a bottoming in the housing market through the housing datas throughout the week, as well as an upbeat leading indicator reading in order to diminish the recessionary fears. A week like this is likely to be technical driven too. The Dow made a remarkable rebound off its 50WMA, which sets the stage for a run all the way to a new high from this point should it follow up tomorrow. The low of 13 Nov will be critical. A close below this level would totally erase the setup and set the mood for more downside.

A lot of analysts are using the amount of put options outstanding as an indication of investor sentiment, which is a HUGE mistake. Investors buy put options over all kinds of reasons and one of the most popular use of a put option is as a protective put . In a protective put, investors are still speculating to upside but adding downside protection to their portfolio! It doesn't that investors are speculating to downside at all! We really need to take such analysis with a large pinch of salt.

I will soon be hosting a podcast on Optiontradingpedia.com where I give my opinions on stocks that you guys request for! Stay tuned to that!


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Volatility Wins The Day...

FUNDAMENTAL ANALYSIS
The Dow ended lower today by 120.96 points on more volatility. With all these volatility talk so far, what exactly is volatility?? Why is everyone talking about volatility? Well, in laymen terms, volatility means that the market will either go up or down in huge, sudden moves which defies short term prediction. Under such market conditions, one needs to adopt a longer time scale. Right now, it seems like there are 2 tribes in the market right now; The Recessionist who thinks the US economy is near or is already in recession and bangs on the weaker dollar, subprime mess and crumbling consumer confidence; The Expansionist who thinks the US market is going to do well even though growth has slowed down. I am definitely an Expansionist who continue to believe in keeping America great. Just look at the bond yield curve right now (See daily yield curve here)! The curve is getting steeper by the days with the long term yields systematically declining! Just look at the Fed Fund Futures! Already pricing in a more than 25 basis point cut! Think America is missing out on the global growth and that the rest of the world is "decoupling"? Think again! Growth is simply a number! Anyone who started with zero would show surprisingly huge growth on the slightest, smallest improvement! Here's to draw an analogy: A company CEO hires a new worker. That worker's pay improved by $1200 a month from zero! Now, that's a huge "growth" for that worker and at the same time, did nothing for the CEO. However, at the end of the day, the CEO is the one who makes the big money when the company does well. That company is now Earth.

TECHNICAL ANALYSIS
More volatility indeed. There are 2 interesting things to take note of today. 1, the gains of 3 days ago continue to hold up and as long as the low of 13 Nov remains intact, we could see a short term run from here. 2, the total equity put call ratio (see daily put call ratio here) SURGED over 40% against yesterday! This is indicative of an excessive bearishness in the market and such excess bearishness usually leads to a short run rally. We saw the same pattern back in some of the key reversal periods previously too. Overall, I would agree that this is a very volatile and dangerous market but with a slight hint of bullishness already magnifesting.

Still More Bullish Than Expected...

FUNDAMENTAL ANALYSIS
What a familar sight!
The Dow held its head up high all day just to get beaten down by the end of the day to close down 76.08 points. The very same thing that happened 2 days ago! However, the Dow was still a little more bullish than most analysts expected. Most analyst expected a close down of at least 100 points reasonably and a pullback of up to 200 points to be consistent with the volatile theme right now.

The Dow got an early boost before market opens when the wholesale inflation data, Producer Price Index, turned in better than expected. The PPI was up only 0.1%, beating analysts estimates of 0.2%. The Producer Price Index measures the price of production at various stages of production. An increase in production prices do not necessarily translate to higher consumer prices in the short run but it does give an insight into the inflation situation. Tomorrow's Consumer Price Index (see economic calendar) is one of the 2 very important indexes monitored by the Fed, the other one being the PCE index. It does seem from the PPI that the higher crude oil of recent months has not begun translating into higher prices in the real economy, that makes me a lot more optimistic about tomorrow's CPI. The data so far seems to point to the conclusion that stagflation does not exist in the US economy like so many economists feared. Stagflation is an extremely dangerous economic condition where inflationary pressure is high while economy growth remains stagnant. However, in order to seal in this low inflationary condition, I would expect another 25 basis point rate target cut next. So how about the weak dollar? Yes, further rate cut's going to hurt the already depressed dollar some more. In the short run, a weaker dollar's going to help the stock market and export growth however, I do see that measures need to be taken to bring the beloved greenback up in the long run after all these uncertainties are in the rear view mirror.

TECHNICAL ANALYSIS
No surprise on the technical front as a huge surge usually leads to a small pullback on a healthy rally. The question remains... is this really the beginning of a rally? With today's market action, I would give the bulls one more thumb up. The Dow has bounced off its 50WMA quite nicely and the market action right now seems to be an exact photocopy of what happened back in August so far. If the photocopy doesn't end here, this may be the start of a short term rallyfrom this point onwards.


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Key Reversal Failed....

Remember what I said yesterday? If the Dow fails at its key reversal day yesterday, it could be in a lot of trouble and indeed, that has come to be. As a technical strategist, when we see an important and possible change in short term trend, we want to very quickly see if the mid term and long term trend remains intact under such a move. A quick glance tells me that the mid term up trend remains intact within a strong long term up trend. However, the Dow does seem a little overdue for a real correction instead of just a simple pullback which we witnessed back in August. For now, I see short term support at the 50WMA level of about 13100, which also coincides round about where the market rally begun in August.

We all know that the stock market does not always reflect the real economy, in fact, the stock market is a really weak economic barometer. The global growth story is strong and intact, US economy is doing surprisingly well with growing jobs, rising productivity, accelerating GDP and controlled inflation. The falling dollar also helped narrow down current account deficit and an improved energy efficiency also reduced reliance on crude oil versus 20 years ago. So, what is the real concern in the economy right now? Well, in my opinion, the market is jittery because we are threading on a lot of new grounds right now... investors have no reference as to the effects of oil and gold at such historical highs as well as the dollar at such historical lows. I continue to have faith in the US economy and with the new free trade agreements, opening up of Vietnam and lowering of corporate tax (hopefully... US corporate tax is one of the highest in the world today), the real economy will continue to accelerate.

Not So Rosy Afterall...

Today was a photocopy playback of what happened back in 9 Aug as the Dow was tackled down for 362.14 points after entering the 30 DMA resistance band that I mentioned yesterday. It is incredible and scary to see how the market action is almost exactly the same as what happened back in August even though market fundamentals then were very different from what it is today. Will we see the market going lower over the next few days like it did back in August before a rebound? What's your take?

Today's message was a cautious one pointing to controlled inflation and growing jobs in a contracting manufacturing sector. The core-PCE is one of the heavy weight inflation indicators that Uncle Ben and his crew watch very closely and having it turn in 1.8% year over year certainly continues to keep interest rate hikes as a distant possibility. The real concern here is the ISM index moving lower for a 4th straight month to near contractionary levels of 50.9 (where a reading below 50 indicates a contracting manufacturing sector). This, coupled with the Chicago PMI dipping below 50, seems to indicate more bad times going forward.

On the earnings front, the effects of the sub-prime meltdown are starting to show up on the balance sheets of the big banks at last. We saw Merrill Lynch sacking their CEO 2 days ago and today, huge losses on the sub-prime front are showing up on Citigroup's balance sheets too. In fact, many asian banks exposed heavily in CDOs are hit pretty hard too. In fact, I think we would see many more of such losses turning up across the Financial sector in the coming earnings seasons.

Tomorrow's job report would definitely move the market in a big way with investors looking for something to believe in. Will the proverbial shoe drop tomorrow with the all important job report?

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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The Rebound Begins?

FUNDAMENTAL ANALYSIS
The Dow gained 92.84 points today in a spectacular come back, kicking off the week on a high note. Much of the gains has been due to a sharp 1.2% rebound in the extremely influential Finanical sector. The Financial sector was beaten down last week amidst fears of possible credit crunch. Helping the market along is a slight retreat in crude oil prices too. Apart from these, there wasn't much significant events driving the market, which brings us to the technical aspects.

TECHNICAL ANALYSIS
Today's market action didn't come as a surprise as I mentioned yesterday that the Dow should start to level off and trade sideways a bit for the weekly 30MA line to catch up and then stage a full scale rebound. Looks like it is happening at last and more significantly, it is happening right on top of the 13250 support level, which has been a significant support level since June 07. I will be watching for a possible entry soon.


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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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