Fundamentals

The first of this week’s super heavyweight data, the ISM Index, turned in slightly better than expected but all it led to is a profit taking sell off that took the market off its high into the red as I have expected yesterday. Investors have indeed been pricing in better than expected ISM Index and Jobs Report over the past two weeks, resulting in a rally that has almost no fundamental support. Such a rally usually ends in a sell off no matter how those data turn out and this time round is no different. On top of that, the ISM Index really isn’t impressive. Even though it was better than expected, it was still lower than last month, reinforcing the retreating growth scenario. In fact, I would see this sell off continue into tomorrow no matter how the jobs report turn out.

Technicals

The Dow retreated from overwhelming resistance built up over the past few days as expected. Two strong bearish candlestick signals occurring at the 30DMA in an intermediate bear trend at the top of a short term rally with no fundamental support. This one is textbook. Odds now favor a revisit of the 200WMA at about 10,750 once again.

The Dow remains in a short term neutral trend within an intermediate bear trend and primary bull trend.

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Fundamentals

There was a lot of optimism in the morning session as much better than expected Chicago PMI and Factory Orders led to a wave of early buying. In fact, the market was already pointing sharply higher on the much better than expected Job-cut report announced pre-market. However, is there no reason to be selling off today? Of course there is. ADP employment report turned in worse than expected before market opened. Even though it was largely overlooked in the first half hour, selling into the strength begun shortly after that, taking the market all the way down from its intraday high into the red. A round of late buying took the market back up from the red, making it a slightly positive day today. It seems like today’s market action is all about investors buying into the early data and traders selling into the strength and hedging their positions at this critical junction. Bond yields rose across the board as investors reallocate back into equities but total equities put call ratio actually rose in favor of put options trading as traders start to hedge their positions and speculate to downside. Yes, the next two days are critical as the truly market moving heavyweight data will be released in the form of the ISM Index and Jobs Report. Analysts are expecting both data to turn in worse than last month and of course, any negative surprise would mostly like start a new leg down.

Technicals

Traders continue to sell into the strength today as the Dow come up against its 30DMA resistance level, forming a topside inverted hammer signal. A topside inverted hammer is a candlestick that has a long wick on top of a small body near the bottom. Such a signal is an extremely bearish signal especially occurring at strong resistance levels and following other strong bearish signals such as yesterday’s spinning top. Short term momentum indicators are also showing signs of the bullish momentum fading. Therefore it is most likely that the market is going to back down to revisit its 200WMA no matter how the economic data turn out over the next two days as it seems like much of the optimism has already been priced into the market through the short term rally (which has no real fundamental support) so far. As such, I would see this junction being a good point to start looking for new short opportunities.

For now, the Dow remains in short term neutral trend within an intermediate bear trend within a primary bull trend.

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Fundamentals

Economic data turned in pretty mixed today; Better than expected sales data in the morning was quickly hammered down by much worse than expected consumer and investor confidence data released after market opened. However, some investors still stepped into the better than expected sales data for the rest of the day and took the market back up into the green. However, it is clear that investors are beginning to get cautious around this level again as bond yields fell across the board suggesting that investors are moving back into bonds once again. Indeed, today’s buying may be the result of the herd following through on yesterday’s move, giving investors the chance to exit the game. This kind of market behavior usually occur on the back of yet another significant sell off. Indeed, with worse than expected heavyweight economic data coming up later this week, it is understandable for investors to start getting more cautious.

Technicals

The Dow hit its 30DMA intraday today and retreated from it, forming a top side spinning top candlestick signal. Such a signal occurring at strong resistance levels such as the 30DMA usually mean the end of a short term “rally”. This ties in exactly with my expectation of the Dow testing the 30DMA and then retreating back down to the 200WMA as there simply isn’t any fundamentals acting as fuel for a breakout. If the Dow turn around and make a negative day tomorrow, it would complete an evening star formation, which is an even stronger bearish formation. That is the most likely scenario. However, if the Dow finds strength in tomorrow’s Chicago PMI and breaks out (the more unlikely scenario), a testing of the 200DMA would be next.

The Dow remains in a short term neutral trend within an intermediate bear trend and primary bull trend.

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Fundamentals

A wave of optimism swept through global markets Monday as the hurricane situation in the US subsides. US index futures were pointing higher prior to opening also on the better than expected Personal Income and Expenditure. Indeed, anything pointing towards happy consumers always give some boost to the stock market in a consumer driven economy. The general sense of optimism also allowed the few investors involved in the market today to overlook the worsening pending home sales, which is another important aspect of the economy. Indeed, today’s rally came on the back of extremely low volume which puts doubt on its validity. However, from the significant increase in bond yields across the board, it seems like institutional investors are coming back into equities from bonds. This means that the herd isn’t buying into this and anything the herd doesn’t follow into, doesn’t quite have legs.

Technicals

The Dow continues its way up to its 30DMA as I have expected. The lack of volume going into the move also tells me that this “rally” isn’t one that has legs and increases the chance that the Dow is simply going to fail at the 30DMA and come back down to retest the 200WMA that I talked about yesterday. So far, the Dow has been textbook and the volatile sideways trend seems to want to expand into a wider volatile sideways trend. One which I speculate could be bounded by the 200WMA and 30WMA just like in 2004.

For now the Dow remains in a short term neutral trend within an intermediate bear trend within a primary bull trend.

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In a week where economic data continued to weaken and the threat of a Hurricane Irene right at the doorstep, the Dow staged an impressive rebound out of seemingly no strong reasons. Yes, these are what is known as “Technical Rebounds”, which means rebounding on technical reasons rather than fundamental ones. Technical reasons means buying or selling due to the current market support or resistance rather than any real fundamental reasons. Indeed, it is hard to put any fundamental reasons behind last Friday’s rally as it came on the back of a worse than expected GDP at 1.0% versus consensus of 1.1% and last quarter’s 1.3%.

Clearly last week’s rebound was a technical one and an expected one as I mentioned last Sunday. The Dow bounced off its 200WMA as expected of a strong support level. We could continue to see the Dow move higher to retest its 30DMA or even the 200DMA. However, it is unlikely that this is a reversal point. In fact, the market is more and more looking set to repeat the kind of post recovery uncertainty of 2004, bouncing between the 200WMA and 30WMA for an extended period of perhaps a year or more before enough toxic waste is drained from the economy to start a real rally. However, if the Dow breaks below the 200WMA this week, then the market would be in a lot of trouble even though that scenario looks to be of a slightly lower possibility from the way the charts are set up right now. It is still time to be very cautious.

This is the first week of September 2011 which means that we are going to get the heavyweight economic datas once again; ISM Index and Jobs Report. Analysts are expecting the ISM index to retreat below 50, indicating a contracting manufacturing sector, the first time since July 2009 and the first time in this recovery so far. Analysts are also expecting a shrinking in non-farm payroll in the Jobs Report. Indeed, if both reports fails to meet expectations, or even if they do, we could see the Dow revisit the 200WMA as the economy continues to shrink.

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Fundamentals

US market took a hit today as jobless claims turned in worse than expected before market opened. Analysts were expecting jobless claims to turn in lower this week at 405K versus last week’s 412K revised number but it turned in at 417K instead, which is not only higher than expected but was also higher than last week. Jobless claims seems to be bouncing around the 450K and 400K level whole year long this year so far, taking the decline in Jobless claims since 2009 to a screeching stop. In fact, over the course of the year, jobless claims seemed to have been on a slight up trend, which is of course a bad sign for an economy struggling to recover from an economic crisis. Analysts are also expecting a lower Real GDP for second quarter preliminary tomorrow, which also added to the cautiousness in the market, leading investors and traders to take some short term profit off the table.

Technicals

Despite making a strong negative day today, the Dow continued to make an expanding day of a higher high and higher low along with rising short term bullish momentum and strong volume. This suggests that the Dow may still continue its way to its 30MA as I have mentioned before where it will test for strength and perhaps make a new leg down on this intermediate bear trend.

For now, the Dow remains in a short term neutral trend within an intermediate bear trend and primary bull trend.

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Fundamentals

US market opened up to an optimistic start today as global markets continue to climb higher prior to US market opening. The strong opening led to an immediate profit taking from some investors exiting on strength but selling soon dried up and the bulls took over for the rest of the day. Investors’ move back into equities today from the low bond yields and high bond prices can be clearly seen from the rising bond yields across the board as investors take bonds profit and back into the low equities prices. Yes, today’s rebound is clearly technical in nature as sales figures and new home sales continue to disappoint today. As such, we will not be surprised to see more selling into the strength in the days to come.

Technicals

The Dow rebounded today on the strong 200WMA support along with rising short term bullish momentum as expected. The Dow also formed a nice morning star formation, which is a 3-day reversal candlestick formation(my Star Trading System is created to spot such strong formations automatically), which also completed a short term double bottom formation on good volume. This shows that the Dow might continue this new dead cat bounce for a few days more, probably testing the 30DMA at about 11,700 points. However, unless something changes in the fundamentals, the market might not have the catalyst to turn this intermediate bear trend around yet. As such, such short term bounces still serve more as exit points than entry points.

For now, the Dow turns into a short term neutral trend within an intermediate bear trend and primary bull trend.

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Fundamentals

Chicago Fed turned in better than expected today before market opened even though it was still a negative number. This, along with the generally more optimistic global sentiment before market opened, took the market higher right from the opening. However, investors seeking to sell on any sign of strength in this weak and uncertain market stepped in right away and took the market all the way downwards right from the higher opening, closing it almost at breakeven for the day. Indeed, investors have not forgotten the generally worsening economic numbers so far and are obviously still seeking to exit the market on any strength strategically.

Technicals

With the Dow’s 200WMA acting as support right now, there are obviously some significant strength in this area from the trading action today. In fact, short term bullish momentum is now rising on our short term indicators which could lead the Dow into another short term sideways trend if the market follows up to upside tomorrow. Otherwise, a visit to the 10,000 points area would still be in the books.

For now, the Dow remains in a short term bear trend, intermediate bear trend within a primary bull trend.

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Yes, this bear market isn’t just about the credit rating downgrade by Standard & Poor’s anymore but also about economic data collapsing back down to about 2009 levels once again. Yes, the US economy is suffering in its path to recovery as financial issues globally and locally hit its economy. However, this phenomena is not a new one as almost all recovery phase enters such a period of uncertainty and retreat from overly optimistic outlook coming from the initial phase of the recovery. We saw that same pattern back in 2004 and 2005 coming off the initial strong recovery in 2003. Yes, this also means that such uncertainty could last a year or more until all the toxic waste of the crisis is totally drained from the economy can a new bull trend start.

On the technical front, the Dow is back down to its 200WMA on the weekly charts. This is an area of strong support/resistance and we could see the Dow recover slightly this week before hitting Thursday’s Jobless Claims and Friday’s GDP. This is also an extremely dangerous area to close below. As we can see from the past, everytime the Dow breaks below its 200WMA, it goes downwards a lot more. As such, if the Dow fails to hold up at this level, then we would see a good down leg for put options trading.

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