US Market Today Daily Columns by Mr. OppiE
US Market Today - Mr. OppiE (Author Profile)
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Sep 2, 2010
The Dow closed up by another 50 points today as investors remain optimistic ahead of tomorrow's Jobs Report.
Fundamentals
Investors were clearly encouraged by yesterday's better than expected ISM Index and are speculating on tomorrow's Jobs Report turning in a positive surprise as well (See Stock Market Calendar). This comes on the back of higher than expected jobless claims and lower than expected factory orders. The pending home sales numbers released in the afternoon could have sustained the rally but the market was already up and rising way before that. Consensus is already expecting a poorer unemployment rate and no-farm payroll in tomorrow's report as such, any positive surprise could really save the struggling intermediate bull trend.
Technical
The Dow continues slightly upwards relative to yesterday's rally today in a low volume trading day that looks more like a dead cat bounce. What was missing in today's "rally" was actually volume. The declining volume over these two positive days truly made the "rally" look suspicious. This, along with the fact that both the daily 30MA and 200MA are acting as overhead resistance and the prior completion of a head and shoulders formation made this "rally" sound more like a dead cat bounce than a true reversal.
For now, the Dow turns a short term neutral trend, intermediate bull trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 31, 2010
The Dow ended in a relatively sideways day up marginally by 5 points amidst mixed economic data released today.
Fundamentals
Investors are bombarded by pretty mixed economic data today. On the one hand, the retail numbers and consumer confidence showed better than expected performance while investors confidence and Chicago PMI continued to move lower (see Stock Market Calendar). In fact, the Chicago PMI, which is considered one of the leading indicators for the ISM index, turned in its lowest level since Nov 2009 even though the number beat consensus. Investors are also clearly cautious ahead of the other heavyweight releases this week; Tomorrow's ISM index and Friday's Jobs report. Bond yields also dipped across the board as investors reallocate into the safety of bonds ahead of the uncertainty. All in all, the theme of the market now is "UNCERTAINTY". There are analysts screaming for the Dow reaching 5000 within the next two years and plenty others with a much more optimistic outlook. Rarely is the market this divided.
Technical
So, what does these all mean on the technical front? The Dow continues to move sideways along its 10,000 points support level as the bulls put up a last ditch effort to keep the intermediate bull trend alive. In fact, these sideways movement has also helped bring the Dow out of its short term oversold condition which opens up the room to downside. This along with the trend of worsening economic data, the odds sure favors a downside breakout. This week's major releases could be the deciding factor on whether the 10,000 points support holds or gets broken to downside.
For now, the Dow remains a short term bear trend, intermediate bull trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 29, 2010
The US Market staged an oversold rally last Friday as bond yields reached levels so low its no longer attractive to many investors. As such, we saw a 164 points surge in the Dow and a rebound in bond yields across the board as investors reallocate into equities. Yes, most big funds see-saw between bonds and equities in order to maintain their portfolio's risk exposure and to meet their profit target.
However, what made this rebound different from just another oversold rally is the fact that it occurred at an important support level, the 10,000 points level. This tells us that investors are finding value at around the 10,000 points area and that the rally has more substance than one that occurs at some other areas. We need to see if investors are going to see into the strength on Monday in order have a feel of whether the 10,000 points level is going to hold up and save the intermediate bull trend.
For now, the Dow remains a short term bear trend, intermediate bull trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 26, 2010
The Dow continued downwards by 74 points today eventhough Jobless Claims surprised positively as gloom sets in on the US Market.
Fundamentals
Jobless claims surprised positively today, turning in a 473K which is lower than the consensus range of 475K to 510K. However, it does take more than one good week to reverse the worsening trend in the jobless claims that have been observed all year. This is also why investors sold into the early strength and reallocated into the already deeply depressed bonds yield.
Technicals
The Dow continued its way down to the 10,000 points zone as the bear trend continues. If the 10,000 points level is broken, the market will laspe into an intermediate neutral trend with support at the 9700 level. Failing which, the market will fall into an intermediate bear trend. As the saying goes, there is no such thing as a triple bottom. If the market make a new low here, we can be sure that the odds favor lower lows rather than a reversal. At this point, there is no indications of strength at this critical area and I am more convinced that the intermediate bull trend is dying and that the market is in real danger of going back into an intermediate bear trend.
So, are we still able to profit from such a volatile market without sweating? Yes, if you use a volatile multidirectional trading method such as my Ride The Flow System which has made about 5% this month so far without watching the market or breaking out in cold sweat.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 24, 2010
The Dow continued the short term bear trend to the 10,000 points level as expected as economic data continue to deteriorate, closing down 133 points.
Fundamentals
Economic data continues to deteriorate today as store sales continue to drop and existing home sales take a serious hit (see Stock Market Calendar). In fact, existing home sales took a 27.2% hit, making the lowest level in 15 years on an annual basis. Yes, you can't have a good economy with a lousy housing market. This is why the housing market has been on the top of every analysts' concerns since before this economic crisis begun. All these numbers convinced investors that the economy might be heading for a double dip recession and spurred a rush to the safety of bonds, depressing bond yields across the board strongly.
Technicals
The Dow headed for the 10,000 points level as predicted and rebounded off it to close at 10,040. With the pessimism going around and plenty of room to go before a short term technical oversold level is reached, there is little reason why the 10,000 points level can hold up. After the 10,000 points level is breached, the next immediate support level would be the July low at about 9700. Failing that, the market will reverse into an intermediate bear trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 22, 2010
The Dow followed up on the bearish continuation pattern last Friday, closing down 57 point, ending the week down 89 points in a relatively sideways week.
On the weekly charts, the Dow is clearly in a congested area all of 2010 and has completed a fairly wide weekly head and shoulders formation, with head on the weekly 200MA, which puts the odds to downside. A head and shoulder formation is a price chart formation with three peaks; a lower peak followed by a higher peak and then a lower peak one again failing to make new highs. It is a powerful bearish formation which started the bear trend back in 2007. The big bear trend of 2007 also started with a strong weekly head and shoulder formation with lower peaks made on the week of 18 July and 14 December and a higher peak made on the week of 11 October.
The current head and shoulder formation isn't as sharply formed as the one back in 2007 so its still too early to tell if it will have the same effect but for now, the odds definitely favor to downside. This is also supported by the rapidly declining economic numbers which seems to say that the economy is not yet ready for self-sustenance. However, for now, the intermediate bull trend remains intact as long as the 10,000 points level hold up which is providing immediate support.
For now, the Dow remains a short term bear trend, intermediate bull trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 19, 2010
The Dow revealed its true nature and intent today as it took back all of its gains of the previous two days, closing down by 144 points.
Fundamentals
Economic numbers continue to turn in worse than expected today. Jobless claims turned in higher than expected at 500K, marking the highest level of jobless claims since late 2009. The Philley Fed, which is a leading indicator for the heavyweight ISM index, turned in far worse than expected as well. Consensus is expecting a positive 7% to general business conditions but it turned in NEGATIVE 7.7% instead which is way outside of the consensus range of -0.6% to 10%. All of these numbers continue to tell the tale of worsening economic performance, leading investors to jump right back into the safety of bonds, lifting bond prices and depressing bond yields to recent lows (see Option Trader HQ).
Technicals
What does a lot of bad news + a nice strong down day with strong volume mean? A VERY Bearish day. In fact, the Dow has completed a bearish continuation pattern today after two days of short oversold rally. As such, odds now incline to downside especially with the daily 200MA and daily 30MA acting as resistance now. If we see a follow up over the next couple of trading days, the intermediate bull trend will be broken. Total Equities Put Call Ratio has also persistently turned in slightly above and around par, which is typical of short term bear trends. From the way odds are stacked against the bull now, I would personally think the end of the intermediate bull trend is imminent and that this is definitely not a good time to start accumulating.
For now, the Dow turns into a short term bear trend, intermediate bull trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 17, 2010
The Dow staged an oversold rebound today like I said it will in my member's newsletter, closing up by 103 points.
Fundamentals
The reason why I think this is a classic oversold rebound is because today's economic numbers turned in worse than expected once again but the market rallied broadly on good volume over almost no reason at all. In fact, index futures are already pointing downwards right after the close. The really important numbers to look forward to are Thursday's Jobless Claims, Leading Indicators and Philley Fed, all of which are capable of moving the market and all of which is anyone's guess with the current trend of worsening economic numbers.
Technicals
An oversold rebound on good volume and made less credible by the strong pullback by the end of the day. Well, I do see one good thing about this rebound and that it occured after a nice bottom side hammer candlestick from yesterday and that it is made right on the Dow's daily 50MA. This means that tomorrow's market action would be critical to determining the nature of today's rebound. If the market followup to upside, I would have no doubt that the 50MA holds and the market's continuing upwards but if the market fails to follow up and pulls back, then today's candle is simply a bull trap that does nothing but kill those who believes in it. So far, since the other major indexes have already broken their short term supports, I would say that there is more downside possibility than upside. As such, swing traders should be cautious about deciding an entry right now but wait for further confirmation.
For now, the Dow remains in a short term neutral trend, intermediate bull trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 15, 2010
The Dow dropped 350 points last week as investors got continuously bombarded by weaker than expected economic numbers both in the US and overseas. Jobs market data continue to worsen with a much higher than expected jobless claims following a poorer than expected jobs report the week before. All these showed that the US economy is not yet ready to start on its own without strong government intervention and led to investors revaluing equities across the board.
Last week's drop was also supported by a continued decline in bond yields (see Bond Yield Curve) as investors reallocate to the safety of bonds along with a strong short term bearish divergence on the RSI. All these tell us that the new intermediate bull trend is now in danger. In fact, the Dow is trading once again below its weekly 30MA on the weekly chart which eradicates any short term bullishness.
There are also a few important economic indicators this week that may set the market into a deeper bear trend; The Empire State Index on Monday, Jobless Claims, Leading Indicators and Philley Fed on Thursday.
For now, the Dow remains in a short term neutral trend, intermediate bull trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 11, 2010
The Dow tanked a grand 265 points today as investors were greeted with poorer economic numbers worldwide.
Fundamentals
Although investors have seen resilient to poorer than expected economic data from the US lately, today's poorer economic numbers from Europe and Asia woke investors to the reality that perhaps it is a global slowdown we are looking at. In fact, investors were so pessimistic all of a sudden that they are still selling off into the futures. In fact, with the futures still pointing downwards, we can look forward to a lower opening on Thursday.
Technicals
A selloff in the Dow after such resilience shouldn't be surprising. What's surprising is the magnitude of the selloff. The Dow cut right through its immediate support level at 10,500 and headed straight for the critical daily 30MA short term support level on strong volume. What I don't like about today's selloff is that it also created yet another short term bearish divergence on the RSI which could prove threatening to the 30MA support. Yes, such are the volatile times we are currently in where market sentiments can change quickly and dramatically overnight. The 30MA support must hold up in order for the bull trend to continue. A breach of the 30MA level would threaten this new intermediate bull trend and put the market once again into a wide volatile channel.
For now, the Dow turns a short term neutral trend, intermediate bull trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 10, 2010
The Dow rebounded from deep intraday losses after the Fed kept interest rate targets unchanged, closing slightly down by 54 points.
Fundamentals
The Feds decided to keep interest rates unchanged at 0% to 0.25% even though they have been talking about the possibility of lowering it all the way to 0% in today's FOMC Announcement (see Stock Market Calendar). FOMC, Federal Open Market Committee, accouncement is when the feds announce the result of their meeting on monetary policy every month. Investors are obviously pleased with the rates staying unchanged as the market rebounded strongly following the announcement although it did not have the time to go back all the way to breakeven for the day. Trading volume also came back strongly after weeks of declining volume. All these goes to further reinforce the resilience that we have witnessed in the market so far and give credibility to the reversal.
Technicals
Today's market action continue to take the Dow slowly off the short term overbought condition without affecting prices much. A sure sign of strength. There's still nothing in the indicators to doubt this new intermediate bull trend. Immediate support level will be at about 10,500 with immediate resistance at about 11,000.
For now, the Dow remains in a short term bull trend, intermediate bull trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 8, 2010
The Dow battled against the bears to take back deep intraday losses last Friday, closing yet another sideways day down a marginal 21 points.
Fundamentals
The US market continue to show resilience against lesser than ideal economic numbers last Friday as the Dow recovered from a deep intraday loss of over 150 points to close down only marginally by 21 points. Last Friday's jobs report was lesser than ideal because more nonfarm payrolls were lost than expected, sinking the market early in the day. However, the resilient bulls saved the day once again as a surge of late buying took the market all the way up towards the breakeven point, ending marginally lower. This is going to be a quiet week with no major economic data being released (see Stock Market Calendar) and a good time for investors to digest last week's numbers and what it means for the future.
Technicals
Volatility remains the theme of the market as once again we witnessed big intraday movements of over 150 points. There are no strong signs to doubt the new bull trend that is in place now even though the market remains in a short term overbought condition. Again, lets not forget that the Dow is used to trading in short term overbought condition for extended periods of time. Looking at the weekly chart, we can see that the Dow has completed a reversal and is once again trading on top of its weekly 30MA which once again is a bullish sign.
For now, the Dow remains in a short term bull trend, intermediate bull trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 5, 2010
The Dow moved sideways today, pulling back a marginal 5.45 points ahead of tomorrow's Jobs Report.
Fundamentals
The Dow held its ground today in the face of higher than expected jobless claims but with extremely thin trading volume. Apparently investors are apprehensive about tomorrow's jobs report and the few those are still in the market are secretly optimistic from the way they held the market against the jobless claims numbers, probably due to the positive ADP report earlier this week. How the jobs report will turn out is everyone's guess. However, it does seem from the resilience so far that a better than expected jobs report might help the Dow break out of its current 10,680 top for greater heights while a lousier than expected number could probably not cause much panic as we have seen how strongly the market has held up against poor economic numbers so far.
Technicals
So, its a sideways day today with the Dow still in short term overbought condition. However, like I always said, lets not forget the Dow is used to trading upwards under short term overbought conditions. So far, the short term bearish divergence that we have identified last week has not proven to be a threat to this new intermediate bull trend. There is now no strong reason to doubt that the market is once again in an all out bull trend, unless the daily 200MA fails to hold prices up.
For now, the Dow turns a short term bull trend, intermediate bull trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 3, 2010
The Dow corrects slightly after yesterday's huge rally by 38 points on weaker than expected store sales and retreating factory orders.
Fundamentals
The ISM index on Monday already indicated slowing growth in the manufacturing sector and today's factory orders continue to confirm those numbers by turning in -1.2% versus estimates of -0.5% (See Stock Market Calendar). In fact, it fell right out of the consensus range of -1% to 0.1%. However, even though these numbers are retreating, it is only normal in the grander picture of things after such an explosive growth coming out of the recession. In fact, major economic indicators were way higher than pre-recession levels and the recent retreat only brings back down to more sensible levels. That is probably why we didn't see the kind of panic selling associated with poor economic numbers.
Technicals
So, did the Dow do anything significant today? Not really. Like I always said, it is normal for the Dow to go sideways or slightly in the other direction following huge single day moves. Volume is also much lower than average today which gives little strength to today's pullback. For now, the base of the up candle formed yesterday will serve as short term support. As long as it is not breached, the short term bull trend continues to be intact. The only thing that keeps technical traders from jumping in right now is the strong short term bearish divergence formed on the RSI, without which, there will be no doubt that this is the kind of reversal we saw back in February.
For now, the Dow remains in a short term bull trend, intermediate neutral trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Aug 1, 2010
Another new month arrives with heavy weight economic numbers such as the ISM index and the Jobs report (see Stock Market Calendar) to be released this week.
Fundamentals
The Dow put up a strong fight last Friday, taking back early losses, closing sideways by 1 point. Market opened deep in the red last Friday as the second quarter GDP turned out worse than expected. Consensus was expecting a 2.5% GDP but it turned out at 2.4%. Even though it was disappointing for a start, investors decided that it really isn't that bad and bought into the weakness as the Chicago PMI and Consumer sentiment beat estimates. However, last Friday's market action still looks very dubious on both the fundamental and technical front. On the fundamental front, the bond yield curve (see Bond Yield Curve Chart) dipped significantly suggesting a rush back into bonds from equities (since there were no new releases) which isn't a sign of strength. This means that investors are concerned about this pullback disintegrating into another significant leg down. So what are the possibilities on the technical front?
Technicals
Even though market did a strong showing last Friday, I am concerned with an extremely strong short term bearish divergence formed right now on the RSI and Stochastics. This, along with the fact that the Dow has barely cleared the gravitational field of its daily 200MA and that it is now at a significant 10500 resistance level, makes a real case for concern whether or not the Dow will get knocked down by the daily 200MA once again like it did back in June. We will monitor how the Dow do at its daily 30MA which is short term support. This also mean that the daily 30MA level is no longer automatically a good accumulation area. Volatility is still the theme for the year and all investors should stay cautious and nimble.
For now, the Dow remains in a short term bull trend, intermediate neutral trend within a primary bull trend.
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US Market Today - Mr. OppiE (Author Profile)
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July 26, 2010
The Dow broke its daily 200MA resistance today, ending higher by 100 points as New Home Sales pleases.
Fundamentals
The recent encouraging earnings season as well as today's better new home sales figures convinced investors that the market might have found its place of value at last, ending the previous sense of the market being too much ahead of the real economy. Indeed, bond traders have also been actively reallocating back into equities the past weeks as investors find support from the earnings numbers and the Fed's committment to go all the way to zero if that's what it takes to bring the economy back up. This is definitely a good area for some mid term accumulation.
Technicals
What I though of as a dead cat bounce has transformed in nature into a classic intermediate trend reversal, coming up from below the 30MA line, rebounding off it and going on higher. This was the same pattern we saw back in February 2010. However, do not be surprised to see the market turn back down slightly or go sideways for a couple of days before going higher. The 200MA which is expected to be the short term resistance level was broken like it did not exist with the market still a long way from being overbought, we could see the same leg up that we saw back in February 2010 as well.
For now, the Dow turns a short term bull trend, intermediate neutral trend within a primary bull trend.
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US Market Today - Mr. OppiE (Author Profile)
My Market Analysis Sent Straight Into Your Email Daily For Only $5/Month! **My analysis will only be posted here once every other day.
July 18, 2010
The Dow slumped by over 261 points last Friday as economic data persistently turned in worse than expected waking investors up to one reality, that the stock market has moved too way ahead of the real economy.
Fundamentals
What happens when expectations were not met by reality? Disappointment results and that was what happened in the market last week and is the overall theme of the stock market the past few weeks. Last Friday, the Consumer Sentiment Index slumped after a 3 months rally, making a 11 months low. This along with last Thursday's dramatic plunge in the Philley Fed woke investors up to a harsh reality, that the coming quarters might be harder than expected. As such, it is not strange for the stock market to revaluate the situation and take back some of those optimism through a period of consolidation like this one.
Technicals
The Dow ended its long dead cat bounce last Friday, turning down very nicely after hitting its daily 200MA and ended slightly below its daily 30MA. However, volume spiked on Friday suggesting a little too much panic which may lead to the market going sideways or pulling slightly over the next few days but as long as the Dow trades below its daily 50MA, I still think its a nice an strong intermediate bear trend in place. Immediate resistance zone would be about 10,400 and immediate support would be about 9700.
For now, the Dow remains in a short term bear trend, intermediate bear trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
July 7, 2010
The Dow gained an impressive 274 points today in an average volume trading day as store sales turned out much better than expected due sales owing to the unexpectedly hot weather.
Fundamentals
All major indices and most stocks put on impressive gains today apparently on the back of great retail numbers. Both store sales and redbook turned out positive as the hot weather recently seemed to have spurred a good round of consumerism (see Stock Market Calendar). However, today's huge rally doesn't seem insync with the events that seem to have spurred it. Retail sales typically do not result in such an impressive rally. As such, I found today's rally more technical than fundamental.
Technicals
What do you call a huge single day rally that came without some seriously strong economic data backing it? Well, I call it a dead cat bounce. Yes, I see today's rally more of an oversold rebound that I mentioned early this week. The retail sales numbers might have given it some reasons but still, it does not justify such a strong rally. In fact, today's rally has all the signs of a dead cat bounce aka bull trap; average volume, big gains, small reasons, occuring after an extended bearish period. Indeed, if you consider the fact that the market has not made a significant up day since this drop begun back in 22 June, today's "rally" really doesn't look like much at all. In fact, index futures are already leading lower as I write this column. I would not be surprised to see these gains get taken back tomorrow. The market is still in a strong and well structured intermediate bear trend and there is nothing to doubt it with yet. I see the 30 days moving average as a strong short term resistance level, as such, as long as it is not broken, I would not be inclined to believe the market is turning around.
For now, the Dow remains in a short term bear trend, intermediate bear trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
July 5, 2010
Welcome back from the Independance Day long weekend! Last week's market action left most traders and investors with a bad taste in their mouth going into the long weekend and only traders that are nimble enough or have a quick trend following trading methodology such as my Star Trading System would have profited from last week's drop.
Fundamentals
Last Friday's unemployment rate number came in beating estimates of 9.8%, turning out an awesome 9.5%, which is the lowest since July 2009 and reinforces the economic recovery scenario. Even though markets still closed lower in a typical pre-long weekend trading pattern, trading was a lot less scary than it was whole week long last week. Bond yield also rose across the board as some short term funds reallocate into equities. Does this mean that this bear trend will end? Well, not just yet since the market has indeed gone too far ahead of the recovery in the real economy. This week is going to be digestion week as investors and traders digest the economic numbers last week, let the market retrace slightly to the mean. As such, we would expect this holiday shortened week to be a slightly positive week (see Stock Market Calendar).
Technicals
The Dow remains in a grossly short term oversold condition with signs of a short term support in place now with the formation of two significant bottom side hammer signals. I maintain my view that the market will go into a dead cat bounce from here. What's a Dead Cat Bounce? Also known as a Bull Trap, it is a short term reversal from a significant downtrend which tempts investors and traders into buying but would quickly dry up and end due to lack of participation, leading to the resuming of the downtrend. Dead cat bounces are great chances to get out of longs and perhaps put on a few shorts.
For now, the Dow remains in a short term bear trend, intermediate bear trend within a primary bull trend.
July 1, 2010
The Dow continued its way downwards today dropping 41 points as uncertainty builds up in major markets worldwide.
Fundamentals
Adding fuel to the already bearish sentiment in the market was a lousier showing in the Jobless Claims and ISM index today. The ISM index is the first heavy weight economic data released on the first trading day of every month. It measures activities in the manufacturing sector and readings above 50 is interpreted as an expanding economy while readings below 50 is interpreted as a contracting economy. The ISM index has been declining for two straight months, its worst showing since it turned around in January 2009. The recent poor showing in major economic data also rekindled the debate as to whether the stock market has moved too far ahead of the real economy.
The uncertainty in the market was also enhanced by uncertainties surrounding tomorrow's Jobs report as well as a long Independance Day weekend coming up.
Technicals
The Dow has declined for 6 straight sessions so far and if we disregard the insignificant rise of 0.05% on 23 June, the Dow would have gone down straight for 8 sessions. All short term technical indicators are in grossly oversold condition and a significant hammer candlestick signal has been formed. A hammer signal is a candlestick with a small body and a long bottom shadow which is created by trading that ended up in the higher price range for the day from a deep sell-off. All these says that a short term bottom might be found and could lead to a dead cat bounce. Yes, there is no such thing as a triple bottom and with the short term and intermediate term bear trend firmly in place now, there is no reason yet to make a significant bet against the trend.
For now, the Dow turns a short term bear trend, intermediate bear trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
June 29, 2010
The Dow failed to do the rebound that I mentioned last week which is very important but instead broke below its 30MA once again, leading to the big drop today by 268 points.
The US market was put on severe pressure before market due to poor performance in the Asian markets. Yes, that's how the 1989 episode started as well with weakness starting in the Asian market before reflection on the US market. US market opened deeply in the red and was pushed further into the red by an incredibly weak consumer confidence number. Consumer confidence not only failed to meet estimates, it was way lower than the consensus range of 61 to 65 as well, turning in at 52.9. Consumer confidence pulled back primarily due to consumers not getting their jobs back. Unemployment rate hasn't improved much even though the economy is in the recovery phase. Concerns in Europe also serves to keep companies and investors cautious. Yes, this is uncertain times indeed.
Even though the Dow's steep decline was largely surprising, my Star Trading System has prepositioned me with three profitable bearish signals a few days ago when strong bearish signals started appearing in some stocks. This goes to show that there is actually a lead up to today's decline and it was not at all as surprising as it looks. The Dow failed to complete its reversal and is now back into the large volatile channel it was in before. In fact, the S&P500 made the lowest close of 2010 today. As the saying goes, "There is no such thing as a Triple Bottom". The S&P500 and the Nasdaq Composite failed to reverse on its previous double bottom and would certainly pave the way for more downside. The Dow won't be spared. After such a strong one day drop, don't be surprised to see the market go sideways or pullup slightly for a couple of days but the trend still favors to downside for now.
For now, the Dow turns a short term bear trend, intermediate neutral trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
June 22, 2010
The Dow pulled back 148 points today as Existing home sales deeply disappoints.
What was an optimistic start for the market today reversed sharply after Existing Home Sales missed estimates by a mile (see Stock Market Calendar). The mixed store sales data did very little to combat the deeply disappointing housing data and with the FOMC announcement coming up tomorrow, investors were traditionally cautious even though the Fed isn't expected to change rates anytime soon. However, we are not surprised at all with the pullback.
Like I said in the beginning of the week, the Dow needs to pullback and retest the 30 days moving average and establish it as a support in order for the bull trend to resume and to complete a reversal of this intermediate neutral trend. The magnitude of today's pullback is strong but with weak volume which does not give it much strength. As such, I would expect the Dow to rebound as soon as tomorrow. The quality of the rebound is going to be extremely important and with a good follow up on Friday, the reversal will be completed.
For now, the Dow remains in a short term bull trend, intermediate neutral trend within a primary bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
June 20, 2010
The Dow gained by 2.35% last week, a total of 239 points, in a critical rebound followup off its weekly 50 days moving average and a breakout of the daily 30 days moving average.
As I mentioned last week, the Dow needs to breakout of the daily 30MA in order to break the intermediate correction and it did. It is now just a matter of establishing the daily 30MA as a support level and then we can look forward to the bull trend resuming. Last week has been an extremely strong week in the market supported by good technical indications. So, are we all safe now?
Not just yet.
Like I just mentioned (also mentioned last week), the Dow needs to pullback and re-establish the daily 30MA as its support level first and this pullback is also extremely critical in the sense that the Dow is now up against its weekly 30MA which could pose some short term resistance. Failing to establish a support on the daily 30MA would once again put the market into trouble even though the possibilities are now slim with so many technical indications in its favor.
This is going to be FOMC week with the FOMC announcement on Wednesday (see Stock Market Calendar) and GDP on Friday, both are market movers. Even though we cannot predict the outcome of these announcements, at least we can tell from the charts that investors are happy and optimistic for now. FOMC, short for Federal Open Market Committee, is the body that is in charge of deciding on the monetary policy to take in order to make sure employment and inflation are kept healthy. The committee meet once a month for two days and then announce their decision, commonly known as the "rate decision", on Wednesday afternoon.
For now, the Dow turns a short term bull trend, intermediate neutral trend within a primary bull trend.
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June 15, 2010
The Dow made an excellent and critical break above its 30MA today, closing up by 213 points.
Even though volume was lower than the recent average, the breakout today is an extremely critical one that put a question mark on the intermediate bear market continuing. However, it is still too early to tell if this is the end of the bear trend as the Dow needs to retest the 30MA and establish it as a new support level.
For now, the Dow remains in a short term neutral trend, intermediate bear trend within a primary bull trend.
June 13, 2010
The Dow ended last Friday up 38 points and up a total of 279 points last week, completing the important follow up that I mentioned last week.
The Dow is now at at the top of its short term neutral channel that I mentioned last week and going by the healthy rebound and the bullish divergence on the RSI and stochastics, I would see the Dow challenging its 200MA line once again this week. The Dow failed to break the 200MA resistance level 2 weeks ago, leading to a dangerous drop and if it fails again this time round, we could see the Dow make another tumble. However, with the strong technical indications that we are getting, as long as the Dow breaks the 200MA resistance zone, we should see it go back up to challenge the 11,000 points level again.
For now, the Dow remains in a short term neutral trend, intermediate bear trend and a primary bull trend.
June 9, 2010
The Dow ended the day lower by 40 points as the less than encouraging tone in the Beige book caused some disappointment and sell-offs.
The Dow started off on an extremely strong note as investors accumulate into the intermediate term support level. However, the enthusiasm died off in the afternoon as the language in the Beige Book release (see Stock Market Calendar) brought us all back to reality. Yes, reality is that the US economy's path to recovery is going to be slow and tough. In fact, the recovery around the world is going to be slow and tough (except, it seems, for China) as it is going to take time and pain to unwind out of the credit issues that have been accumulated over the decade. Lets also hope that Europe comes up with ways to stop the domino effect from getting any worse.
As a trader, we cannot predict nor stop world events from happening, as such, we keep our focus on interpreting what's going on and how to profit from it.
The market action today is an extremely encouraging one on an intermediate time frame. The Dow bounced off the low made on 25 May, which is the final gate stopping the bears from running amok, and made a higher high and a higher low today, which is definitely a bullish sign even if the day ended negative. If the Dow follows up to upside today, we could see a short term ride to the top of this short term neutral channel at about 10,250. Yes, volatility is the name of the game now and definitely a good time for quick and nimble day trading as we saw today.
For now, the Dow remains in a short term neutral trend, intermediate bear trend and a primary bull trend.
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June 6, 2010
The Dow dropped a huge 323 points last Friday as jobs report failed to please and investors continue to worry if Europe is going to spur a continuation of the global economic crisis.
Yes, if problems in the US can spur a worldwide recession, so can problems in Europe. Investors were surprised to see debt problems coming out of Europe like pimples out of a teenager's face. I am not an expert in European economies but surely if problems continue in Europe, investor confidence which is so slowly coming back into the market will disappear once again.
So, can the market laspe back down into a primary bear trend?
Looking at the Great Depression of 1929 which has been so often compared to what is happening now, what looked like the end of the bear market in 1930 lasped into a second and even stronger bear trend. Is this the same thing playing out now? Well, there is a significant difference between that pullup during the first half of 1930 and this pullup so far and that is, the pullup in 1930 did not fulfill a trend reversal into a bull trend. It was merely an intermediate pullup in a primary bear trend while the recovery so far is a primary bull trend that has fulfilled multiple pullback waves. Does this mean that the market will not go crazy and go down further? No, it simply means that the chances of it going into yet another significant and stronger bear trend like it did back in 1930 is a lot lower but if the situation in Europe worsen, the world could see yet another serious financial turmoil.
Currently, the Dow is in yet another extremely dangerous position. The 323 points drop last week has placed it slightly below the critical 10,000 points psychological support level and if we do not see it come back up or show signs of strength on Monday, then we see the Dow going into a much deeper correction.
For now, the Dow turns a short term neutral trend, intermediate bear trend and a primary bull trend.
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The Dow gained a huge 225 points today, erasing the previous two days' losses, as store sales and pending home sales make good headway.
The Dow made an extremely important rebound today on great consumption data (see Stock Market calendar), taking back over 200 points of lost ground in a single day. Indeed, in an economy driven by consumption, consumers spending is extremely important and is what analysts are looking for as the real sign of the end of this recession. However, did today's rally change anything?
Seriously, nothing.
The Dow continues to struggle within an extremely tight volatile channel bounded by its 200 MA and the 10,000 support level. However, today's rally reinforced the credibility of the 10,000 points support even though volume is relatively low. The Dow is once again up against the 200MA line and we will certainly be watching out for a clean breakout before deciding which direction to go on.
For now, the Dow turns a short term neutral trend, intermediate bear trend and a primary bull trend.
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June 1, 2010
Welcome back from the Memorial Day Long Weekend! Hope you guys enjoyed your holiday!
The Dow bounced off last week's dragon tail formation and is now once again up against its 200 days moving average line, closing down 122 points against it last Friday.
Markets around the world lapsed into uncertainty as the situation in Europe worsen as the domino effect starts to swing to other European nations. Yes, if Europe does not unwind from this crisis properly, it is sure to affect the rest of the world as well. In fact, the US market is in such a strong intermediate bear trend now that I am inclined to think of any pull ups right now as bull traps. Indeed, the market truly have went way too far ahead of the recovery in the real economy and investors would certainly be tempted to take profit and invest in the real economy instead.
This week is going to be a heavy weight week with the traditional giant economic data such as the ISM index and job reports releasing this first week of June 2010. With most economic numbers already in pre-recession levels, I would not be surprised to see more volatility in the numbers and hence more volatility in the market. In fact, from the way the RSI is leading lower strongly over the past few months, I would see the market being range bound between 11,000 and 10,000 before the market decides which way to move. All in all, the world market is in a state of uncertainty with a few important and potentially destructive financial and political hot spots brewing up. This is a market for the nimble.
For now, the Dow remains in a short term bear trend, intermediate bear trend and a primary bull trend.
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May 25, 2010
The Dow formed a huge dragon tail formation today with strong participation, closing down marginally by 22 points today.
Worries on the Korean front caused markets across Asia to plummet, resulting in a deep low opening for the US market. This is certainly the most turbulent economic recovery phase that we have ever seen. The media's always full of good news during each of the last time the world walked out of an economic crisis but this time, it seemed like there are bad news sprouting out from all over the world. The European crisis as more European nations get into economic problems and the mounting tension between now possibly-nuclear-armed-North-Korea and South Korea. All of these macro geo-political and economic problems are certainly casting a shadow on the world economic recovery scenario.
Yes, this is going to be a "recovery" we have never seen before and could possibly put a ceiling over the primary bull trend in the US market. However, as trend followers, our job is to read the trend and action according to it without making any biased predictions.
So, what's a dragon tail formation?
Well, its my way of calling long hammer candlesticks formed at the end of a significant and strong downtrend which comes with strong volume, like what we see in the Dow today. Such a formation usually spells the end of a short term or intermediate term downtrend and it forming on the weekly 50MA intermediate support level does give it a lot more credibility. This means that it is certainly not time to consider being newly short. The situation now is such that it goes beyond mere technical analysis. If war breaks out in Asia, nothing can save the world market as nations in Asia take sides with and against the US. As such, we need to be nimble and pay attention to how this issue is developing as well.
For now, the Dow remains in a short term bear trend, intermediate bull trend and a primary bull trend.
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May 19, 2010
The Dow retreated 66 points today as the dollar continued to move stronger against the euro and the market continues its post flash crash turbulence.
No doubt, the intraday volatility today continues to exceed the Dow's normal average true range, suggesting that the turbulence caused by the 6 May flash crash has yet to settle. Of course there are other macro economic factors contributing to the largely pessimistic trading mood today. Even though we are no longer in a market where the market needs to go upwards in order to produce a profit, it is still interesting to see if the market is going to turn around.
I certainly think that the weekly 30MA is going to hold up as support and that the market could end up higher over the next few days due to a huge surge in total equities put call ratio today (See Put Call Ratio Daily Chart. Put call ratio today surged over 20 basis points to end up above 1.4, suggesting a rush into put options. However, as a contrarian indicator, whenever the put call ratio should make a significant move in one direction like it did today, it is usually a sign that the market is going to turn around. In fact, the last time the total equities put call ratio hit such a high was back in late 2008 just days before the market bottomed out and started turning around. I don't see why with such a strong support level and storng intermediate as well as primary bull trend in place, it shouldn't be the case this time round.
For now, the Dow remains in a short term neutral trend (within an extremely wide and volatile price channel), intermediate bull trend and a primary bull trend.
May 17, 2010
The Dow ended another turbulent week last week as experts and academics continue to argue over the real reason for the flash crash (as it has come to be known) of 6 May. Well, as a trader, the reason is not important to me at all neither am I interested in wasting time finding out and debating over this issue. My only and real concern is how to trade and profit from what has happened and what will happen. Why it happens is the job of academics, not traders.
I looked at the weekly chart for the Dow and saw an interesting pattern. As crazy as the market condition seemed the past 2 weeks, a look at the weekly charts revealed that the Dow did nothing more than the regular pullback down to the weekly 30MA which it does all the time in a healthy bull trend. The only difference is that while it took a couple of weeks to hit bottom before like back in February, it took only one day this time. Efficient market hypothesis? Well, it would be scary if markets no longer trend but jump instantly from point to point!
Looking at the weekly chart of the Dow reveals that it reached a short term ceiling at the weekly 200MA line, which is historically a strong resistance level, and then retreated back to the weekly 30MA for support, which looks totally normal. So far, the 30MA support seems to be holding up well but the 200MA does quite go down lightly. Historically, it took weeks to break it everytime. Now, what if the Dow breaks the 30MA support downwards? If it does, the next support level would be at the weekly 50MA level along which we could nimbly make a quick profit downwards before reassessing if it is going to go down further.
For now, the Dow turns a short term neutral trend (within an extremely wide and volatile price channel), intermediate bull trend and a primary bull trend.
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May 13, 2010
What a turbulent week it has been in the US market in what was traditionally a quieter week as the market attempts to unwind itself from all the mess created by last week's freak incident.
So far, its still not clear what caused last Thursday's drop neither it is that important anymore to know. As traders we focus on what we should do under such circumstances instead of wasting time digging for reasons. Let those who are supposed to do the digging do the digging while we wait for the "final verdict" and trade our way out of this or stay out altogether.
So far, the Dow have taken back most of the lost ground but seems to be having some difficulty at the daily 50MA area. Could those automatic system trading programs be interpreting this as the start of a bear trend and is now selling into the strength? Maybe. That is why I keep saying computers should not be totally autonomous in trading. If you won't give nukes to skynet, you shouldn't give money to computers without close human scrutiny either. So far, the market direction is extremely unclear and there is no strong indication if this is turning into an intermediate bear trend or is it rebounding from a short term pullback and heading higher. In accordance with the primary bull trend, the inclination seems to be pointing upwards but as trend followers, we prefer not to make guesses and wait for the market to make a decision so we can simply follow. Remember, the market is no place for soothsayers.
For now, the Dow turns a short term bear trend, intermediate bull trend and a primary bull trend.
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May 10, 2010
Interestingly, the market failed to turn around last Friday as widely expected if it was indeed just a simple technical error. Perhaps its due to the unexpected rise in unemployment rate as the Dow continued its journey downwards by 139 points.
The cause of last Thursday's historical ditch, which amazingly resembles the Black Monday ditch, is still a matter of speculation. In fact, the explanation that its just a technical error isn't convincing most retail traders as they continued to sell off last Friday despite pockets of savvy investors buying into the ditch. However, we now know how Black Monday ended, yes, HIGHER. That's how I expect the market to continue following this spectacular intermediate term pullback. However, at this point in time, there are still no confirmation on the technical front of any reversals yet. There are signs of a bottom, like the long bottom shadows and exhaustive volume near the 200MA support level, but there is no confirmation yet and so no reason for trend followers like us to jump onto the bandwagon.
This is a quiet week with no big economic data (as are all second week of the month) and a week for investors to really calm down and decide what to make of all these mess right now. Plenty of reasons to be optimistic and plenty of reasons to be pessimistic, which camp will win? Due to the duality of these "reasons", trend followers like myself prefer to numb ourselves to these noises and simply follow what the market does. Remember, there is no room for soothsayers in the market.
For now, the Dow remains in a short term bear trend, intermediate bull trend and a primary bull trend.
May 6, 2010
The Dow made history today (negatively though) with a historical intraday drop of 1010 points! To put perspective on how big a drop is 1010 points, it is big enough that if it happened back in any time before 1982, the market would have dropped to ZERO! However, such a huge intraday drop is definitely a clear case for quick arbitraguers to step in on and the Dow recovered a over 600 points intraday to end down by 347 points, which is still extremely ugly.
What happened today? Well, there are a lot of speculations but so far from the trading pattern and evidences, it seems like we had a "Skynet day" where computers attempted to take over the world. Yes, it was reported that most of these selling are triggered by machines doing the trading, not human. How the selling started is still a lot of speculation. Some say its an error by some fat fingered trader (what's the probability of that kind of error happening on a daily basis in a market with so many traders? Shouldn't such things be happening everyday then?) and some say its some new Hollywood conspiracy put up by wallstreet. No matter what the reason is, traders like myself should be more concerned about how to manage existing positions and move on. Good thing is my Star Trading System seemed to have picked up some dangerous undercurrents and have kept me out of directional swing trading for the past couple of weeks, so I sat out of the mess and smiled with all my profits made over the last 30 days intact.
So, what is going to happen from now on?
In a wierd way, I actually think this drop is badly needed. The market has been in an extremely over-extended intermediate bull trend with no significant consolidation along the way. This only make the market less and less tradable the higher it goes. We are badly in need of a strong, decisive, correction which will help this primary bull market grow further and I think this is it. No doubt savvy traders are already expecting the market to turn around from here as after market futures continue to point higher. In fact, tomorrow could see the bulls come back in a big way. So, no, this is not the start of a primary bear market. Never before has the stock market turned a primary bear trend after coming out of a recession and it won't this time round either.
For now, the Dow turns a short term bear trend, intermediate bull trend and a primary bull trend.
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May 5, 2010
The Dow tested its daily 50MA today as it continues its drop today by 58.65 points on pressure from the Greece tragedy.
This week turned out to be extremely volatile as I have expected at the beginning of the week on mixed economic data and continued uncertainty surrounding the Greece problem. Even though this drop looks scary, it is totally reasonable and desirable within the framework of an intermediate term bull trend. As I have said before, this intermediate bull trend is extremely over extended and historically, the Dow does need some work to break out of its weekly 200MA resistance level as we have witnessed in the past. In fact, a few weeks of battling this level is totally normal.
Today's sell off has resulted in a huge ditch in the bond yield across the board and a huge surge in the total equities put call ratio to above 1 once again (see both charts). Such combinations always say market reversal the very next day so I would expect tomorrow to be a positive day in the market but whether or not the 50MA will hold as support level needs to be further confirmed.
So, is it time to "Sell in May and Go Away"?
Well, with today's technology and a chart of the Dow at everyone's disposal, I don't think it takes a lot of research to see that May isn't exactly a consistently negative month. In fact, it has largely been positive as well. So, lets not make rash decisions based on old adages and then give up precious gains.
For now, the Dow remains in short term neutral trend, intermediate bull trend and a primary bull trend.
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May 2, 2010
The Dow ditched by 158 points last Friday as GDP turned out lower than consensus at a fair 3.2%.
In all fairness, the GDP number last Friday was well within consensus range with some pretty exciting recovery in some specific components. However, investors simply needed an excuse to sell out of the over-extended market like I mentioned last week. Once again we have bond traders rushing back into bond, depressing bond yields across the board and options traders rushing for put options, bringing the total equities put call ratio above par (see Put Call Ratio Chart).
The interesting thing is this surge in the put call ratio to 1.06 last Friday. This number shows that put options are now more heavily traded than call options, which is not a common occurance in a primary bull market. We saw a lot of it in the primary bear market back in 2008 but only a few times in January, February and March this year. Every single time put call ratio exceeds 1 this year, the market turned around on the extreme pessimism and then headed for new highs almost the very next day. Indeed, such surges against the primary trend usually depicts panic which usually reverses itself the very next day, as such, I would expect this week to be a week of struggle at the 11,000 level with the Dow recovering some lost ground on Monday.
This is going to be a heavy weight week with the ISM index on Monday and Jobs report on Friday. These numbers should produce lots of volatility in the market this week as news battle sentiment in this strong resistance zone.
For now, the Dow remains to a short term neutral trend within an intermediate and primary bull trend.
Apr 27, 2010
The Dow ditched by a huge 213 points today as the Greek debt problem sent waves of panic across the trading floor.
Soveriegn debt problems always cause worldwide panic as memories of the Russian debt default comes back to the minds of the long time veterans. We saw the same thing in the Dubai problem as well. However, we do not see the Greek debt problem being of that scale and certainly would not have that kind of world wide impact. I certainly do think that the Greek debt issue is merely an excuse for investors to finally decide to get out of an extremely short term over extended market.
Like I mentioned two days ago, the market is still short term over-extended and it is now pending a strong intermediate pullback like the one we saw back in January. I was wondering what might be the catalyst for such a pullback and this Greek debt problem might be it. Investors were in all out panic; Bond yields collaspe across the board as investors reallocate, VIX shot up by over 30% and trading volume was way higher than average. The Dow is once again at its 11,000 psychological level which now coincides roughly with its daily 30MA. If this level fails to hold, short term support will be at its daily 50MA level of about 10,750.
For now, the Dow returns to a short term neutral trend within an intermediate and primary bull trend.
Apr 25, 2010
The Dow staged a breakout of the 11,140 points short term price ceiling last Friday, closing up by 70 points at 11,204.
Last Friday's gain came on the back of great housing numbers last week with both existing home sales and new home sales turning in stronger than expected. The housing market has been in the duldrums for way too long and a recovery in this sector would definitely be beneficial to the overall economic recovery.
On the technical front, there is nothing much to doubt this breakout as it has good volume and form. However, don't be surprised to see a few sideways or slightly negative days before it continues upwards. Traders also need to be nimble to react to a possible intermediate term pullback like the one we saw back in January. with the market this extended without any significant pullbacks along the way, we can expect the next pullback to be a strong one.
This week is FOMC week where the Feds meet to decide the financial fate of America (and the world?). The Feds will be announcing their decision on Wednesday (see Stock Market Calendar) and are expected to keep rates steady. So yes, if they raise target this time round, investors will be caught off guard and we will see that big pullback I talked about. However, that is merely a distant possibility right now.
For now, the Dow resumes an all out bull trend.
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Apr 21, 2010
The Dow gained a marginal 7.86% today as profit taking continues in this great earnings season.
Yes, lets go back to basics and remember that the market is a discounting mechanism, not a feedback mechanism. As such, all future expectations would have been priced into the market before it actually happens and then if it does, profit taking sets in, resulting in a largely sideways market. If results come in worse than expected, the market will take back those gains that were priced in previously, resulting in a drop.
One good thing we see today is that advancers are now above decliners at last, giving a shade of strength to this short term toppy market. Since earnings releases so far are largely better than expected, we could see this market go sideways a bit more before bouncing off its daily 50MA for new highs.
Even though short term outlook is still very healthy, lets remember that the Dow is now at its weekly 200MA + 11,000 points psychological resistance level, so, lets not be surprised to see some struggle at this level before the Dow do a real breakout.
For now, the Dow remains in a short term neutral trend within an intermediate and primary bull trend.
Apr 19, 2010
The Dow ditched by 125 points last Friday as the huge dip in put call ratio earlier last week predicted. Indeed, market usually falls when traders are most optimistic. The total equities put call ratio has been returning to normalcy these few trading days into a more balanced 0.91 today as the Dow pulls up slightly.
Why do I call what appears to be an huge 73 points gain a "slight pullup"?
Well, for one a slight positive day is totally normal following huge single day declines and so far, decliners continue to lead advancers today. In fact, from today's intraday market action, it is obvious that the Dow has yet to break the gravitational field of the 11,000 points resistance zone. Indeed, one cannot expect such a significant psychological resistance level to be broken easily. I would not be surprised to see the Dow continue largely sideways this week in order to muster enough energy for a real breakout.
For now, the Dow turns a short term neutral trend within an intermediate and primary bull trend.
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Apr 14, 2010
The Dow made a breakout today by a huge 103 points on returning consumerism indicated by higher than expected retail sales.
The US market celebrated the return of consumers as retail sales beat consensus of 1.2%, turning in an actual 1.6%. Consumers form the basis of the US economy and the return of consumers is one of those end of recession signs most conservative analysts and investors are waiting for. Market opened northwards, met with some resistance before an inline business inventory number gave it a push that never looked back. All in all, today's economic data is telling us that jobs and buying may be back soon.
Even though today's market action is to be celebrated with many mid and small cap stocks posting tremendous gains, it is a day which must be taken with a big pinch of salt. Why? Because the optimism is just too overwhelming. In fact, the total equities put call ratio made a low not seen since Aug 2009, indicating a rush into call options on bullish speculation (see Put Call Ratio Chart). Yes, eventhough call options can be bought for many different purposes, speculation still remained the top purpose. What usually follows such overwhelming optimism is a short term pullback. Looking back in August 2009, the put call ratio entered the 0.5 region on a single day rally of 155 points on 21 August. It was then followed by a retreat that took back all the gains and more before the bull trend resumed in September. This means that the Dow may not have cleared the gravitational field of the 11,000 points level yet. As such, I would be looking to close some of my more profitable short term positions, especially those that gained over 5% today.
For now, the Dow remains in an all out bull trend.
Apr 11, 2010
The Dow made a dash for new high last Friday and closed up 70 points, ending the week at 10997 points, just a tad short of 11,000 points.
It seems like the 72 points drop last Wednesday was the single day drop I was talking about that will give rise to a new high. The Dow is coming up against a significant psychological resistance level, the 11,000 points level. I would expect some volatility around this area before the market makes further highs. In fact, the 11,000 points level coincides with the Dow's weekly 200MA, which again is expected to be a significant resistance level. As such, I would expect a few week of volatility around this level before it ultimately breaks out.
It is options expiration week ahead again (see Stock Market Calendar) with the top movers this week being the Empire State Index, Philley Fed and Jobless claims on Thursday. The Empire State Index and Philley Fed are already in pre-recession levels so I hope investors do not take volatility in those numbers too hard. Jobless claims remain much higher than pre-recession levels but its 4 weeks moving average has exhibited a steady and healthy downtrend.
For now, the Dow turns an all out bull trend.
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Apr 5, 2010
The Dow retreated 72 points today as investors rushed back into the safety of bonds.
Investors rushed back into the 10yr bond auction today in the face of this extremely short term overbought market and depressed bond yields across the board. Options traders also returned from a strong call options bias to a more balanced put call ratio on today's market retreat. In fact, this is the strongest single day retreat the Dow has made since this strong rally begun back in March.
From the magnitude of today's retreat, a healthy pullback to the 10,750 level seems imminent. Yes, the market needs a nice little pullback such as this one in order to set the stage for more buying. Most investors who are bullish in the mid and long term won't want to enter when the market is this extended on the short term. As such, a pullback is necessary ingredient to encourage buying and higher highs.
For now, the Dow remains in short term neutral trend, intermediate bull trend and primary bull trend.
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Apr 4, 2010
The sideways trend continues into a second week last week as the Dow continues to trade within its 10955 - 10800 short term neutral channel.
However, the two weeks of sideways trading has allowed the US market to digest most of its short term overbought condition and should be up and running again within these couple of weeks. For this week, I still see the Dow sideways or even slightly downwards. Perhaps not a strong one but at least a significant single day pullback.
The market is going to greet a positive open on Monday as last Friday's unemployment rate did not move higher as some have feared. Yes, make no mistakes, peak unemployment rate happened back in October 2009, marking the worst this recession can get. The economy is on the recovery but at a much more gradual and modest pace. The mess that has been created in the economy is going to take many more years to completely unwind.
Mar 31, 2010
The US market continues to be range bound as the Dow closed down by 50 points today.
Even though the ADP employment report was disappointing today, it didn't stop the market from opening up strongly and staying high for most of the day on great factory orders. Profit taking stepped in towards the end of the day as profit takers continue to retreat out of this grossly over-extended market.
With most of the economic indicators already at pre-recession levels, investors are now watching out only for signs of a recovery in the job market. They didn't get any reassurance today. Investors are likely to continue retreating out of the market tomorrow ahead of the long weekend and jobs report coming on Friday itself.
The US market have been moving largely sideways for a week now and it has certainly taken some of the short term overbought sentiment away. All short term overbought markets can resolve either by pulling back slightly or going into a significant sideways trend like we are witnessing now. The market continues to be amazingly resilient to a pullback as new short term bullish signals continue to appear in stocks across the board. Despite all of these resilience, the possibility of a pullback to about 10,700 continues to be extremely high.
For now, the Dow continues to be in an all out bull trend.
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Mar 28, 2010
The US market was more resilient than I expected last week. What I expected to be the beginning of a significant short term pullback has ended up with the market moving largely sideways. Through this sideways movement, the market has also managed to digest much of its short term overbought condition. Even though the market is no longer short term overbought, it is still slightly overbought on an intermediate term basis and a pullback to around 10,600 points would allow the market to move much higher in this recovery market in a much healthier way.
My continued expectation of a pullback along with the number of heavy weight economic data that we will be getting this week tells me that its going to be a volatile and tricky market to play in this week (see Stock Market Calendar). I would continue to be cautious about being newly long in this market.
For now, the Dow continues to be in an all out bull trend.
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Mar 21, 2010
The US market pulled back last Friday as this over extended market runs out of steam at last. The Dow closed down by 37 points, the Nasdaq composite closed down by 16 points and the S&P500 closed down by 5 points. Of course, one negative day doesn't say much but such a significant negative day occurring at such a peak does make it a lot more dangerous than "just a negative day".
The pullback that I am talking about here isn't the kind of long drawn kind of pullback but rather a quick short term one week pullback to digest the short term overbought condition in order for the market to continue higher in a healthy manner. I am not predicting a market top here. This recovery market has a lot more to go before it hits the next top. In fact, what I am suggesting here is a possible entry point following the coming short pullback, so please don't interpret this negatively.
It is going to be a relatively quiet week ahead with the turbulent FOMC + Quad witch week behind us. The big number this week is the GDP 4th quarter estimate on Friday (see Stock Market Calendar).
For now, the Dow remains in all out bull trend.
Mar 16, 2010
The US Market rallied today with the Fed's decision to keep providing interest-free (or nearly interest-free) money. The Dow closed up by 43 points today, pushing towards 52 weeks high.
The S&P500 joined the Nasdaq composite in making new 52 week high today, gaining 0.78% to close at 1159. Yes, today's Fed announcement continued to stretch an already over-stretched market and managed to hoax traders and investors watching on the sidelines into the market as volume surged with the rally. So, is this a good thing? Is the market going to continue going upwards? In the mid to long term, YES. But the short term is now extremely uncertain and dangerous.
I see a classic scenario playing out here...
In an already toppy market where more and more investors are sitting on the sidelines for a significant period of time, a sudden "good news" convinced many of them to go back into the market, creating an exhaustion peak and then we know what follows... the slaughter.
The market will make strong and steady 52 week highs but not without first a short term pullback to digest this extreme overbought condition.
For now, the Dow remains in all out bull trend.
Mar 14, 2010
What a week last week! Even though the Dow traded in a more sensible fashion, the Nasdaq composite and the S&P500 continued to stretch their winnings, ending in extremely weak volume and toppy signals last Friday.
Looking at the signals formed by the Nasdaq composite and the S&P500, I have no doubt that this week is going to be pullback week. Even though the Dow moved in a much more sensible fashion so far, it will no doubt be affected by the pullback too. However, if a pullback happens, the Dow is probably going to move down much lesser than the S&P500 and the Nasdaq composite will. In fact, I see short term support for the Dow at about 10,400.
Throwing oil into fire is the fact that this week is Quadruple Witching week. The level of volatility that is going to be in the market this week will no doubt act as a catalyst for the pullback.
For now, the Dow remains in all out bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Mar 11, 2010
The Dow closed yet another sideways day, moving up by 44 points despite early profit taking.
Why do I say that the Dow made another sideways day when a 44 points move is a pretty significant one? Well, thats because it still closed within the trading range set by the past few sideways days, so there are no breakouts. However, the S&P500 and the Nasdaq composite seems to be painting a different picture altogether. They seem to have both broken out to upside and moving higher each day, so shouldn't the Dow follow suit shortly?
Before you get too enthusiastic, let me tell you why I think the S&P500 and the Nasdaq composite are in for big trouble soon.
First of all, even though they are both making new highs, their trading volume continues to contract over this period of gain. This is more revealing when you look at the trading volume of the SPY and the QQQQ, which are ETFs of both indexes. This, together with the huge gap between the indexes and their daily 30MA and the grossly short term overbought condition says, the longer this goes on, the harder the fall will be. Yes, the last time we saw such a huge break from the 30MA along with such gross short term overbought condition was just before the 2008 crash.
No, I don't think the bear market's coming back as the fundamentals are now different. But there will definitely be a significant pullback in order to digest all that overbought condition before the market can move on higher. This pullback would be significantly milder for the Dow as it isn't as grossly overbought as the other two indexes. The Dow would probably pullback to the 10,400 area when it happens and establish a new support. So, this is definitely not the time to be newly short term bullish.
For now, the Dow remains in all out bull trend.
Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!
Mar 9, 2010
The Dow closed another sideways day marginally upwards by 11 points today.
The US market has been largely sideways since last Friday's rally as expected in order to digest away some short term overbought sentiment. What is evident these couple of days is that there is still a very strong underlying bullish sentiment with the NASDAQ composite moving slightly ahead of the market as usual. However, this moving ahead has increased the possibility of a short term pullback before the market can go any higher as the distance between the NASDAQ composite and its daily 30MA is now way too wide, keeping it in a grossly short term overbought condition. In fact, the NASDAQ composite has already beat the January highs which justifies a little pullback before it will go any higher.
Yes, in fact, options traders are already moving into, at least for the short term, put options as the total equities put call ratio collasped over 20 basis points today (see Put Call Ratio Chart).
So far, the US market has been conclusively technical driven, moving in predictable patterns despite economic data or news. The kind of market that I like.
For now, the Dow remains in all out bull trend.
Mar 7, 2010
What a week it was last week as the US market resumes its intermediate and primary bull trend as I have expected. That's right, I never thought the market is going to collaspe back into a bear trend because the signs of recovery is sure and clear. There was the peak unemployment reversal and there was the Primary Bull Trend established by the Dow theory. When the signs are this clear, I never let fear and doubt get in the way.
Last Friday's unemployment rate, although not amazing, was certainly surprising, resulting in the huge rally in the market. Investors have been expecting a slightly higher unemployment rate due to all the job related data that have been released so far. However, unemployment rate remained resilient and stayed at 9.7%. This goes to show again why, unlike the ISM index, there are no officially recognized leading indicators for unemployment rate. All the other data such as ADP report and jobless claims might give an indication on how things are in the economy but they definitely do not directly lead the official unemployment rate data. OK, lets not go into conspiracy theories here.
The Dow rallied a huge 122 points last Friday alone, closing the week up by a total of 240 points or 2.33%. Last Friday's rally is so big that this week is most probably going to be mostly sideways in order to digest away some short term overbought sentiment.
For now, the Dow is in all out Bull Trend.
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