The pullback continues today as the Dow closed a huge 151 points lower after last Friday's big Jobs Report disappointment.
Fundamentals
The huge disappointment in last Friday's Jobs report started this pullback which actually adhere closely to expectations of a technical pullback. Investors rushed out of equities and back into bonds, depressing bond yields across the board strongly. Traders also ran back into the protection and short term downside speculation of put options, causing a surge in the total equities put call ratio. Indeed, last Friday's jobs report was a surprising disappointment especially when almost all of the leading indicators up to that point is suggesting a better than expected report. In fact, analysts were expecting better no-farm payroll and better unemployment rate than the month before. However, both critical measures turned in not only worse than expected but worse than the month before with non-farm payroll turning in only 54K versus consensus of 232K and unemployment rate rising to 9.1% versus consensus of 8.9%. This sudden drop reminded investors and traders never to be too certain about economic data forecast. However, with the way economic data is actually recovering, I would see this pullback as a temporary one and that investors would return once again when the coming numbers such as this Friday's Empire State Index beats expectation.
Technicals
As I said last week, this isn't the kind of market that can go straight up under deep overbought conditions and the disappointment in the Jobs report actually started the pullback that I was expecting. Indeed, this market cannot move on higher without confirmation of this new bull trend by testing its 30MA for support. Lets wait and see how the market perform as the Dow approaches its 30MA. Good entry points would certain present themselves once the integrity of the 30MA is tested. Could it coincide with a better than expected Empire State Index this Friday?
For now, the Dow turns a short term neutral trend in an intermediate term neutral trend within a primary bull trend.
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Going Deeper Into Overbought...
The Dow continued to climb today by 56 points carried by better than expected sales figures.
Fundamentals
Redbook posted a year on year store sale gain of 5.2% versus 2.5% last week. This is an extremely strong sales figure which is somewhat supported by the weekly ICSC-Goldman Store Sales' year on year figure. Consumers is the backbone of the US economy and a recovering consumer is a recovering economy. This is probably what gave some investors the guts to chase into this already short term overbought rally. However, not all investors think the same way as bond yields collasped across the board due to reallocation back into the safety of bonds. Options Traders also continue to keep the total equities put call ratio above par in favor of put options trading. Furthermore, the VIX actually rose today even as all three major indexes were up. Under normal circumstances, the VIX move inversely to the movement of the S&P500, however, when the VIX move in the same direction, it usually mean that there might be a change in short term sentiment shortly... in fact, as soon as tomorrow. This happened back in 29 April 2011 when all three major indexes were positive along with a positive VIX. This led to a one week slide from the next trading day onwards. (see bond yield curve, total equities put call ratio and the VIX at http://www.optiontradingpedia.com/option_trader_hq.php )
Technicals
The Dow continued to move upwards despite being in short term overbought condition. There is almost no doubt by now that the bull trend has resumed and this "Intermediate Correction" has ended. The only question is when or if we could expect a slight pullback in order to set up good entry points. Even though the Dow is used to powering onwards and upwards in deep overbought condition in strong markets, I am not sure if this is that kind of market condition. Today's market condition continue to be ruled by a lot of fear and changes in the macro-economic situation. Putting all the odds together seem to suggest that the Dow should make a slight retreat before it can move on higher. This is particularly true with the NASDAQ Composite which has made its 7th straight up day today.
For now, the Dow remains in a short term bull trend in an intermediate term neutral trend within a primary bull trend.
My Market Analysis Sent Straight Into Your Email Daily For Only $5/Month! **My analysis will only be posted here once every other day.
Fundamentals
Redbook posted a year on year store sale gain of 5.2% versus 2.5% last week. This is an extremely strong sales figure which is somewhat supported by the weekly ICSC-Goldman Store Sales' year on year figure. Consumers is the backbone of the US economy and a recovering consumer is a recovering economy. This is probably what gave some investors the guts to chase into this already short term overbought rally. However, not all investors think the same way as bond yields collasped across the board due to reallocation back into the safety of bonds. Options Traders also continue to keep the total equities put call ratio above par in favor of put options trading. Furthermore, the VIX actually rose today even as all three major indexes were up. Under normal circumstances, the VIX move inversely to the movement of the S&P500, however, when the VIX move in the same direction, it usually mean that there might be a change in short term sentiment shortly... in fact, as soon as tomorrow. This happened back in 29 April 2011 when all three major indexes were positive along with a positive VIX. This led to a one week slide from the next trading day onwards. (see bond yield curve, total equities put call ratio and the VIX at http://www.optiontradingpedia.com/option_trader_hq.php )
Technicals
The Dow continued to move upwards despite being in short term overbought condition. There is almost no doubt by now that the bull trend has resumed and this "Intermediate Correction" has ended. The only question is when or if we could expect a slight pullback in order to set up good entry points. Even though the Dow is used to powering onwards and upwards in deep overbought condition in strong markets, I am not sure if this is that kind of market condition. Today's market condition continue to be ruled by a lot of fear and changes in the macro-economic situation. Putting all the odds together seem to suggest that the Dow should make a slight retreat before it can move on higher. This is particularly true with the NASDAQ Composite which has made its 7th straight up day today.
For now, the Dow remains in a short term bull trend in an intermediate term neutral trend within a primary bull trend.
My Market Analysis Sent Straight Into Your Email Daily For Only $5/Month! **My analysis will only be posted here once every other day.
Welcome Back From Independence Day
Welcome back from the Independence Day Long Weekend! What a week it has been last week!
The Dow made it's biggest single week rally for the year 2011 last week, gaining a whopping 648 points in a single week. The last biggest single week gain was back in March 2011 when the Dow reversed out of a short term correction. The Dow also did this reversal on the back of its 30WMA, which makes it an extremely credible end to the current intermediate correction. Indeed, this intermediate correction seems to be ending way too early... which once again mean that we are still overdue a significant correction of the kind we saw back in May 2010 and certainty demands some cautiousness going forward.
This reversal also came on the back of a much better than expected ISM index last Friday which gave it the fundamental support the market needed to confirm the reversal. The ISM Index bucked all previous leading indicators and turned in 55.3 versus a consensus of 52, which is lower than last month's 53.5. Indeed, analysts were expecting a poorer number this month due to all the leading indicators so far but the ISM index surprised everyone by turning in not only better than consensus but better than last month in a pattern that seems to suggest a few more months of better ISM index to come. Yes, such is the strong fundamental that is needed to end strong corrections.
Jobs report is going to be released this Friday and analysts are expecting a better showing this month and if analysts expectations are beaten once again, that could secure the market for yet another new high. Happy trading to all!
My Market Analysis Sent Straight Into Your Email Daily For Only $5/Month! **My analysis will only be posted here once every other day.
The Dow made it's biggest single week rally for the year 2011 last week, gaining a whopping 648 points in a single week. The last biggest single week gain was back in March 2011 when the Dow reversed out of a short term correction. The Dow also did this reversal on the back of its 30WMA, which makes it an extremely credible end to the current intermediate correction. Indeed, this intermediate correction seems to be ending way too early... which once again mean that we are still overdue a significant correction of the kind we saw back in May 2010 and certainty demands some cautiousness going forward.
This reversal also came on the back of a much better than expected ISM index last Friday which gave it the fundamental support the market needed to confirm the reversal. The ISM Index bucked all previous leading indicators and turned in 55.3 versus a consensus of 52, which is lower than last month's 53.5. Indeed, analysts were expecting a poorer number this month due to all the leading indicators so far but the ISM index surprised everyone by turning in not only better than consensus but better than last month in a pattern that seems to suggest a few more months of better ISM index to come. Yes, such is the strong fundamental that is needed to end strong corrections.
Jobs report is going to be released this Friday and analysts are expecting a better showing this month and if analysts expectations are beaten once again, that could secure the market for yet another new high. Happy trading to all!
My Market Analysis Sent Straight Into Your Email Daily For Only $5/Month! **My analysis will only be posted here once every other day.
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