Daily US Stock Market Fundamental & Technical Analysis

9.5% Unemployment Rate

2009-07-02T18:48:00.000-07:00

The Dow closed down 223 points ahead of the independance day long weekend as unemployment rate in the US turned in a better than expected 9.5%.

Eventhough the consensus for unemployment rate was 9.6%, a 9.5% number is still higher than last month. That, along with higher than expected loss of payroll jobs of 467,000 and the long weekend ahead was all the reasons investors need to sell out today in order to protect against an uncertain long weekend (see Stock Market Calendar).

On the technical front, the Dow failed right at its 30 days moving average short term resistance level to go back into the pullback scenario. Even though trading volume was low today, the steady short term bearish momentum did make a good follow up on the weekly evening star formed 2 weeks ago. Ever since the weekly evening star formation was formed 2 weeks ago on the Dow, it has fallen a total of about 274 points in a steady march towards its short term support level of 8000 points. Yes, as I have mentioned whole week long, this is an important pullback because how low it goes determines if this is a reversal or a continuation pattern. With the strong economic outlook right now, chances are that this is a reversal but as technicians, we would want to see that evidence show up on the charts rather than to speculate it.

Have a great long weekend!

ISM Continues To Recover...

2009-07-01T18:10:00.000-07:00

The Dow gained marginally by 57 points as the ISM index missed estimated marginally at 44.8 vs 45.

The ISM index was again better than it was last month and continued to reinforce the economic recovery scenario. However, that did not stop investors from being cautious ahead of tomorrow's unemployment rate number and the long weekend that loomed ahead (see Stock Market Calendar). Trading volume remained low whole week long as nobody wants to be the hero. There are a lot of money on the sidelines, yes, but is worth nothing if nobody takes action. Unemployment rate is expected to hit a high of 9.6% this time round and investors clearly aren't willing to risk anything on that. With so much fear and resistance in the market, it is hard to see how the Dow can stage an upside breakout.

The Dow reversed its short term down trend into a short term neutral trend today as it continued to crawl just beneath its 30 days moving average. That line has been the support/resistance line for this intermediate term rally so far and it's still doing a good job of preventing the Dow from staging a breakout. In fact, this is a rare period of time where the long term and short term moving averages are cramped up almost all at one spot, suggesting that this is a point of decision. This is the point where the Dow must make a decision for the next intermediate leg. Be it up or down. From the market action so far these couple of weeks, downwards seems a lot more logical than upwards. Yes, we do need this intermediate pullback. If it does not go full length this time round, it will the next time round and stronger then. This intermediate pullback is necessary to determine if we are in a real bullish reversal or simply a continuation of the primary bear trend. Yes, history teaches us that bear markets can go on longer than this.

Dow Under Heavy Resistance

2009-06-30T17:41:00.000-07:00

The Dow retreated 82 points today despite another round of economic data that continues to point towards economic recovery.

In fact, investors are expecting tomorrow's ISM index to show yet another better number of 45 (see Stock Market Calendar). So, why is the Dow still not rallying in the face of all these optimism? This is where the divide between economic outlook and market outlook is clear. Even with optimistic economic outlook, the stock market may not move correspondingly due to technical reasons. What technicals measure is the sentiments and behavior of investors, not the economic outlook. Even in times of great economic outlook, there will be pockets of pessimistic market outlooks, especially for the short term, due to fears of being overbought. Yes, there will come a time in every significant rally that the fear of losing the profits made so far outweighs the joy of more profits. That is when investors starts taking profit and ending rallies. The Dow is currently at that point in this intermediate term rally. This is also what is known as a technical pullback.

The Dow failed today right at its 30 days moving average, once again establishing it as a strong resistance level. A follow up tomorrow could lead to a visit to the 8000 points short term support level very quickly. For now, the Dow remains at short term bear trend, intermediate term bull trend and primary bear trend.

One Good Day...

2009-06-29T21:49:00.000-07:00

The Dow gained 90 points today ahead of tomorrow's Chicago PMI number. Yes, this is not only a holiday shortened week but also a heavy weight week full of heavy weight numbers such as the ISM index on Wednesday and Job Report on Thursday (see Stock Market Calendar).

Investors are clearly expecting the optimistic numbers to continue into this round, hence the early buying. Are all these enough to change the technicals? Clearly not yet. The Dow has been stopped right at its 30days moving average line today which is short term resistance for the pullback scenario. Chances are slim that the Dow will find the strength to break upwards tomorrow no matter how the Chicago PMI turned out but if it does, it merely goes back into a short term Neutral trend with not clear strength to carry the intermediate term rally on much longer. If it fails and retreats tomorrow, short term support would be around the 8000 points level. The US market just isn't recovering like those of the BRIC nations, which are going almost straight up now. Not even the ETFs linked to BRIC nation indices are doing what the stock markets in those countries are doing.

For now, the Dow remains in short term bear trend, intermediate term bull trend and Primary Bear Trend.

Dow Continues Pullback...

2009-06-26T22:21:00.000-07:00

The Dow ended down for a second week in a row this week, losing 1.19%.

Despite optimistic outlook and economic data this week, investors are selling into this widely anticipated technical pull back scenario, beating the Dow down everytime it takes a peek upwards. On the weekly charts, the Dow followed up on the evening star signal that was produced last week and with rising bearish momentum, the odds definitely favors the way down. Short term support is at about 8000 points.

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

Market Down Despite Optimistic Fed

2009-06-24T16:22:00.000-07:00

As expected, optimistic comments from the Fed did nothing for the market as investors continue to sell into the pull back scenario. In fact, not even the better than expected durable goods order helped.

The Dow had a good early day run but was quickly beatened back to the reality of the pullback, closing down marginally by 23 points. It is pretty clear now that we are in a technical driven market and that looking out for where this pullback ends up is the most critical thing for this whole reversal scenario. So, how far down is good? As long as it does not make a new low, it is good. This pullback will tell us if the rally we had is a bullish reversal or just a Bear market rally. Again, I doubt if tomorrow's GDP number will help with continuing this intermediate bull trend due to reasons I cited yesterday (see stock market calendar).

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

Sideways Day Ahead of Fed...

2009-06-23T18:26:00.000-07:00

The day before every FOMC announcement is usually a sideways day. The Dow made a sideways day down marginally by 16 points today. This is also a common occurrence following every large single day moves like the big breakdown we got yesterday.

The short term odds remain bearish as investors may be hesitant to react to anything good from the Fed tomorrow due to this technical retreat and may be more than willing to sell down this retreat even further. That's what technical analysis is really measuring, sentiments. It measures how investors are behaving despite what was being said on the news. Yes, we call that many differents names in technical analysis; Momentum, Support / Resistance etc etc but all these names mean only one thing, and that is what investors are feeling and doing at those prices. Yes, sentiments!

For now, the Dow remains in Short Term Bear Trend, Intermediate Bull Trend in a Primary Bear Trend.

Pullback Starts At Last...

2009-06-22T18:01:00.000-07:00

The widely anticipated technical pullback in the US market begins at last with the Dow following up on last week's drop to downside by 200 points today.

Yes, today's move has nothing to do with news. Economics numbers haven been upwards looking so far with only small pockets of pessimism. This is the widely anticipated pullback that will tell us if this is a bullish reversal we are witnessing or simply the primary bear trend resuming its downwards course.

According to the Dow theory, a bullish reversal is only confirmed if the Dow does not make a new low on this pullback and then rebounds to new highs. Short term support is around the 7700 region. Sad to say, the 200 days moving average won the battle this time and it will be up to the rebound to challenge it again. The Dow had a good run so far and is way overdue a break like this.

FOMC WEEK!

2009-06-21T17:16:00.000-07:00

The Dow made its first significant retreat last week, down 2.95%, making a new 3 weeks low.

In fact, the Dow formed a evening star candlestick formation on its weekly chart right around its 50 period moving average. An evening star candlestick formation is a bearish candlestick formation which is particularly strong around resistance levels. An evening star forming around its 50 period moving average during a time of widely anticipated pullback certainly must ring a bell of caution.

This week is also FOMC week and the Feds are definitely going to keep rates unchanged and say a lot of good things about the economy going ahead (see stock market calendar). Since there isn't going to be any surprise, I would expect the week to be largely technicals driven, which may be a little less than bullish with the way the Dow is behaving now. Before you walk away thinking that the pullback is a bad thing, please understand that the quality of the pullback decides if we are now reversing into a bull market or still in a bear market under the Dow Theory. Until it does, this will always be an intermediate bull trend in a primary bear market.

More Signs of Economic Recovery...

2009-06-18T16:17:00.000-07:00

The Dow rebounded slightly off its critical 30days moving average support today by 58 points as more optimistic economic data hit the wire.

Better than expected Philly Fed, leading Indicators and jobless claims (see stock market calendar) supported the Dow from breaking below its critical 30 days moving average today. However, investors are cautious ahead of tomorrow's quadruple witching day as well as the weekend ahead and did not jump in on the data. In fact, trading volume remained mediocre today.

The Dow is now at the crossing point between its 200 days moving average, which has been the resistance level the past week, and its 30 days moving average, which provides support. Looking back, we can see that the crossing of the 30 and 200 days moving average is an important event as it usually signifies the beginning of a new trend. The question now really is, will it do so? I pretty much doubt we will have a satisfactory answer this week as tomorrow is arbitrage day (quadruple witching). Nonetheless, the future never looked this bright going forward and the long term outlook remains optimistic. For now, the Dow remains in short term neutral trend, intermediate term bull trend and long term bear trend.

Dow Down On Mixed Economic Data...

2009-06-16T18:53:00.000-07:00

The Dow continued down by another 107 points today on better than expected housing data but poorer than expected store sales (see Stock Market Calendar).

In my opinion, today's move it more technical than anything. Investors sold off as confidence in this rally slowly faded away, to be replaced by the fear of the pullback everyone's been expecting. In fact, with quadruple witching coming up on Friday, some profitable investors would also want to take some profit off the table rather than risk the volatility. Certainly there are more ways to protect one's profitable positions in the face of uncertainty like the Protective Put, but not everyone thinks the same way. The Dow is now barely on top of its 30days moving average, which is the most important support for this intermediate bull trend so far. This move down, coinciding with the 200 days moving average, puts the Dow in an extremely disadvantageous position. As I have mentioned before, the 200 days moving average is a strong resistance level and the Dow isn't going to be able to break it without a fight. It seems like its happening right now.

Sell-off Day...

2009-06-15T16:09:00.000-07:00

The Dow sold off by 87 points today as the Empire State Index turned in worse than expected (see stock market calendar).

The Empire State Manufacturing Index, or commonly known as the Empire State Index, is a monthly survey of manufacturers in the New York area. Survey covers past conditions as well as future expectations. Now, the Empire State index, like most other index, is volatile and does not go straight up or down. Even though it failed to go higher this time round, it is still higher than the last lower number two months ago, which still indicates a rising trend. This is definitely a positive. On top of that, future expectations are really positive in the report as well.

What the Dow did was a healthy pullback to its 30 days moving average, which has been the support for this intermediate term rally so far. Over the past three months, the Dow has bounced off its 30 days moving average for new monthly highs. Will it do so again? The answer will only be revealed tomorrow. If it follows up to downside tomorrow, breaking the 30 days moving average, the big pullback every analyst have been waiting for would start.

Trading Interest Returns...

2009-06-11T15:59:00.000-07:00

The Dow closed yet another largely sideways day today, up by 31.9 points, as jobless claims continue to decline. Indeed, the jobless claims number is indicating ahead of the unemployment number that the worst in the job market may be over. This, together with the rising long term bond yield indicating future inflation expectation, paints a very healthy recovery picture.

Today was clearly a much more bullish day than the past 7 trading days as the Dow made a new 4 months high intraday. This, together with the fact that trading volume is now rising once again shows that trading interest is once again returning as fears of the big pullback begin to diminish. Traders are also seeing that the 200 days moving average isn't yet causing any problem as the Dow glided past it. The next big hurdle to cross for the Dow is the 9000 points resistance level which it failed multi-times back in December 2008. Options traders also gave their seal of approval with the put call ratio going down by 9 basis points to 0.77, indicating more call options trading than put options trading.

The Dow remains in short term neutral trend, intermediate bull trend and primary bear trend.

Bulls Win The Day...

2009-06-08T18:34:00.000-07:00

What was looking like a big down day today turned out much better than expected as the bulls regained lost ground by the end of the day. Bond yields continue to rise across the board in what looks like a strategic reallocation into equities over the past few days. Volume continues to move lower as more and more investors sit on the sidelines expecting a pullback.

This intermediate bull trend that the Dow is in is an extremely gradual one, which is what makes this 5 sideways days look very normal. In fact, the Dow could continue to go sideways until the 30days moving average catch up again. Such gradual advance is extremely healthy and may be the future behavior of the market as investors become more educated and risk adverse after this crisis. However, this rally is not going to go much further without a significant pullback. This is what I firmly believe in even though there isn't any signs to prove it yet. Declining volume is bad but declining volume without signs of retreat also shows that there are still significant bullishness in the market and when investors on the sidelines have waited long enough without a pullback, they will inevitably jump right back in again.

There Goes One Good Week...

2009-06-07T18:52:00.000-07:00

The Dow ended the week strongly last week up by 3.09% as optimistic economic data whole week long was priced in as early as Monday. Indeed, other than unemployment rate, which is expected to be higher anyways, every number pointed towards economic recovery. That could also be why the bond traders jumped in last Friday, raising bond yields across the board (see bond yield curve).

The Dow seemed to be holding up against the 200 days moving average pretty well and is currently slightly above it. However, danger's not over until it breaks out even though the intermediate bull trend still looks strong and within a very stable pattern. Volume is what was lacking from the last few weeks as more and more investors expect the market to pullback. Yes, a pullback is necessary to test the integrity of this intermediate bull trend and to ascertain if this is a bullish reversal we are looking at.

The second full week of each month are usually quiet weeks as investors digest and react to all the heavy weight economic data released during the first week. Investors would continue to focus on the jobless claims number and for confirmation of a bottom. Indeed, jobless claims are already painting a very good picture as the 4 week average corrects back down. My personal opinion is that we are witnessing a bullish reversal in the stock market now and that the worst is over.

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Another Sideways Day...

2009-06-03T19:32:00.000-07:00

The Dow closed down by 65 points in yet another sideways day. Although not strange to see a few sideways days following every big up day, going sideways along the 200 days moving average on such lower volume does say that investors are concerned about it as well.

The factory orders and ADP employment report did not surpise positively today (see Stock Market Calendar) but investors did not panic, which is a good thing. Panic is when there is a significant down day + big volume. Didn't see that today. Goes to show that investors are still locked on the recovery scenario.

As I have mentioned yesterday, the 200 days moving average is a significant resistance level and I would not expect to see a simple breakout. In fact, I would expect the Dow to revisit the 30 days moving average again before mustering enough energy for a breakout. For now, the Dow remains in a short term and intermediate bull trend within a primary bear trend.

Just a Sideways Day...

2009-06-02T17:58:00.000-07:00

As I've always said, no matter the news, a few days of sideways days always follow significant up or down days. However, one thing made this sideways day a slightly dangerous one; The 200 days moving average. The Dow is right on its 200 days moving average at last. This is the first time the Dow has visited this line since May 2008! Technically, 200 days moving averages are strong support/resistance levels for intermediate and primary trends. If you look back on December 2007, you will see the 200 days moving average providing significant support before the weight of the crisis come crushing down. That said, yes, the 200 days moving average does nothing to change the big trend changes. Is this one of those? Looking back at history again, we can see that once the Dow crosses the 200 days moving average from below, it rarely looks back. So this might be a defining moment for whether or not this is a real Bullish Reversal as well.

For now, short term bullish momentum remains strong and tomorrow's Factory orders might provide some stimulus past the 200 days moving average if it comes in exceptionally strong. If not, then it will be sideways til this Friday's Jobs Report (see Stock Market Calendar)... which is going to indicate a higher unemployment rate, no doubt, lets see how investors react to that.

Dow Breaks Out!

2009-06-01T17:44:00.000-07:00

The Dow broke out decisively above its 8500 resistance level by 221 points today! Indeed, that rebound off the 30 days moving average along with the rising short term bullish momentum I identified yesterday really did the job.

The Dow broke out as the ISM index beat expectations, proving once again that the US economy is indeed on the war path to recovery. Eventhough the ISM index is still below 50, which still suggest a contracting economy, it has recovered for 5 consecutive months, suggesting that the worst for the economy may be over. In fact, new orders recovered to above 50 for the first time in 17 months. At this point in time, I think we have more than enough data to call an end to the economic crisis and the beginning of the recovery. Sure, there are some giant companies which need to suffer the final blow but that does not stop the economy from recovering as a whole.

The Dow is now at the doorway of its 200 days moving average, which is an extremely important level to break, as I have mentioned before. With volume and short term bullish momentum rising, it may not prove to be any problem at all. The Dow is now once again in short term bull trend, intermediate bull trend within a primary bear trend. Yes, we still need a pullback to verify if it is a bullish reversal in accordance with the Dow Theory.

Market Surge on GDP but No Breakout...

2009-05-31T16:21:00.000-07:00

The Dow made an impressive run for the 8500 resistance level on a favorable revision of Q1 GDP last Friday, surging by 96 points. However, the Dow once again stopped short of the 8500 resistance level without a breakout. Good news is that short term bullish momentum on my indicators are rising once again, which means that the 3 weeks of short term neutral trend could have exhausted the bears enough for the bulls to stage a breakout. However, speculations aside, we need to see the breakout actually happen before sounding the trumpets.

So far, the economic data does support a recovery outlook. More and more investors are now convinced that the way ahead is especially optimistic. In fact, stock markets in emerging market nations such as Russia, India and China has moved for ahead of the US market. In fact, I am more and more convinced that we are witnessing a reversal here even before the Dow do that all important pullback that will identify this intermediate rally as either a secondary wave up in a primary Bear market or a real bullish reversal.

This is going to be a heavy weight week(see Stock Market Calendar) with the Jobs Report on Friday and the ISM index on Monday. Yes, we get these 2 important numbers on the first week of every month. Will we see a reversal in the unemployment rate to set the unemployment rate reversal rally into action? Consensus is for unemployment rate to rise above 9%, which is totally possible with big giant companies still laying people off. Has the stock market moved too early then? Not really. The stock market is a discounting mechanism, which means that it is pricing in future value instead of what is happening right now or what has happened. The unemployment rate could really be higher this time round but what investors are pricing in right now is the recovery that will follow.

The Dow continues to be in a primary bear trend, intermediate bull trend and short term neutral trend.

Dow Up on More Optimistic Data

2009-05-28T18:06:00.000-07:00

The Dow gained 103 points today as Durable goods order and Jobless claims turned in better than expected. Especially important is Durable goods order turning in a positive number this time round, indicating renewed economic activities.

Sadly, even though both economic numbers are important and beat expectations, the Dow merely made another sideways day within the 8500 / 8300 squeeze that I mentioned yesterday without any signs of a breakout. In fact, the Dow fell way short of yesterday's high. Investors are also wary of how tomorrow's GDP number would turn out (see Stock Market Calendar). Consensus is for a rebound, in line with most of the economic data that we have recieved so far. The only question is, has this GDP rebound already been priced into this intermediate rally so far? Yes, the rally has ben strong without strong reasons then... could this be the reason? If it is, investors would have all the reasons to take profit even if the GDP do beat expectations. But one thing is sure, the long term propects for the market looks very good from this point forward. It is the short term swings we are trying to interpret here and to pin point as closely as possible each turning point. My analysis yesterday stands.

Short Term Neutral Trend Continues...

2009-05-27T19:05:00.000-07:00

As expected, the Dow did not have the strength to stage a breakout today and gave back 173 points. Despite the store sales and existing home sales coming in stronger than expected, investors are simply out of steam as much of the enthusiasm regarding the economic recovery has been exhausted in that incredible 2 months rally into an intermediate bull trend.

Trading volume continues to drop as relative strength continues to weaken. The 30DMA test is now imminent. The Dow needs to break either the 30DMA to downside or the 8500 level to upside now as both levels have created a squeeze the size of today's trading range. With the weakening technicals, I speculate that a downside breakout is more probable especially in line with the fact that this intermediate bull trend is way overdue a pullback. That pullback is critical as it would reveal whether or not investors are ready to make a real reversal of the primary bear trend. Investors are playing the waiting game now, waiting for a better re-entry on a pullback while the bears are waiting to resume the primary bear trend. The question is, which force is now predominant? Nobody can tell until we see how low the pullback goes. If the pullback fails to make a new low before rebounding, then we would be witnessing a bullish reversal in accordance to the Dow theory.

Tomorrow's Durable Goods order and Jobless claims might be the catalyst for the breakout as these are extremely important economic numbers that investors are watching right now (see stock market calendar).

Consumer Confidence Returning?

2009-05-26T17:17:00.000-07:00

The Dow surged 196 points today as the consumer confidence number beat estimates by a mile (see stock market calendar). All major indices climbed steeply from 10am onwards right after the number was released. Yes, this is the biggest rebound in consumer confidence since this crisis begun and a decisive rebound at this point really does suggest a bottom to this economic crisis. So, is consumer confidence returning for real? Are people spending again? Well, traditional economics suggest that jobs need to pick up first before spending does. Jobs are still very much in the ditch right now but hey, the stock market is forward looking; Obviously investors are pricing all that in right now.

So, did anything change for the Dow today? Really, Nothing. The Dow was once again stopped short at the 8500 level in a continuation of the short term neutral trend. Today's surge did nothing to change that trend and did nothing to beat the 8500 resistance level. Relative strength continues to weaken as average trading volume continues to decline. However, a rebound off the 30DMA is always a good sign. At least we know that this short term neutral trend is not about to turn around into a short term bear trend to end the current intermediate bull trend yet. That is the only positive today. With the weakening in the technical indicators despite a gain today, the Dow just isn't displaying the kind of strength needed for a breakout yet. For now, the Dow continues to be in a short term neutral trend, intermediate bull trend and a primary bear trend.

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Dow Under Heavy Resistance

2009-05-25T16:20:00.000-07:00

The Dow experienced heavy resistance at the 8500 level for the past 2 weeks. Its short term has also turned neutral bounded by 8500 and 8250 along with a steadily declining trading volume. This certainly flashes a red light on the intermediate bull trend. Its 30DMA has also caught up and the Dow is now trading right on top of it. The 30DMA is an extremely important support level for intermediate trends and long term trends and a significant break below the 30DMA would spell the end of the intermediate bull trend (every technician would have their own way of defining this point). The Dow needs a determined break above 8500 to continue the intermediate bull trend and this week's data may be the key to deciding if that happens or not.

This is going to be a pretty heavy week with important data such as the consumer confidence tomorrow, retail sales and existing home sales on Wednesday, Durable goods and jobless claims on Thurday and GDP on friday (see stock market calendar). No matter how these numbers turn out, we can be sure that this is going to be a volatile week as well.

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

Memorial Day

2009-05-24T23:38:00.000-07:00

I am back from my one weekend holiday at last! :) Monday is Memorial day and is a US market holiday so its going to be holiday for me again. Please join me again tomorrow for analysis of the market for this coming week.

Why was the Dow up When Jobless Claims were up?

2009-05-14T17:40:00.000-07:00

Yes, the Dow was up 46 points today and the Nasdaq composite up 25 points on a day where jobless claims were higher than last week. What happened?

Bullish stocks do not go up in a smooth slope neither do bearish stocks go down in a smooth slope. This is the same with almost everything that can be charted in the stock market. Jobless claims chart looks very much like a stock chart with short term and intermediate term retreats within every bull or bear trend. What the Jobless Claims number did today was one of those very healthy pullup within a new bear trend. This is because it is lower than the jobless claims number 2 weeks ago, forming a lower low (last week) and a lower high (this week). This is an extremely healthy pattern which should promote some investment confidence. Of course, things would have been VERY different if the jobless claims number today was higher than 2 weeks ago.

The Nasdaq composite also rebounded from its 30DMA today, forming a classic short term pullback within an intermediate bull trend. This is the kind we saw back in the pre 2007 bull trend. Very healthy and will continue the bull trend if followed up tomorrow.

Tomorrow is May equities options expiration day (see stock market calendar) along with the Empire State Index and would be a slightly volatile day. How the market close tomorrow would be important to the readiness which the Dow would reach the 9000 points level.