The Dov halted its landslide last Friday with a 60 points rally on the much better than expected Jobs Report. Indeed, the jobs market seems to have improved more than analysts have expected and a better jobs market is the prerequisite to any economic recovery.
However, just when the market is ready to price in the better outlook, S&P500 has to cut US debt rating one notch down from AAA to AA+ after market close. Indeed, like some high profile analysts said, there cannot be a worse timing for such a debt rating cut. Just when investors were ready to celebrate on the jobs report and better economic outlook, the debt rating cut hit their heads like a mallet on a mole. In fact, index futures are pointing sharply lower already, and Monday is expected to be another massacre unless the White House come up with something quickly. There is no doubt it would already be a bloodbath in the Asian `nd European markets before US market open.
This debt rating cut is a historical event which has never happened before and investors usually have only one response to never-before events... RUN. Indeed, the US debt issue is a serious one that could hamper all efforts to rebuild its economy. So far, the Dow has broken every single reliable support and short term bottoming signal so we are in uncharted territory now, both on the technical and fundamental front. Not even during the 2008 bear market did we see such a strong and continuous beat down, not even during the 2008 financial crisis was US debt rating downgraded. As such, there is no reliable historical reference in the US market for such events occurring. A look at the debt downgrades in other countries seem to indicate stock market recovery shortly after such a downgrade but how much does the behavior in those market correlate with the much more complex stock market of the biggest economy of the world? I do not dare draw such linear relationship. In fact, the market is at a juncture where is it too deeply oversold to start going short and too much negativity to start going long. Yes, an extremely tricky market now and no doubt a market for speculators who will be greatly rewarded for their correct "predictions".
Dow Turns Negative For 2011
The Dow took a crippling blow in the jaw today, closing down by a huge 512 points today even though Jobless Claims was better than expected.
Fundamentals
If Tuesday was a slaughter, today's definitely a massacre in the US market. Market opened down and went downwards decisively even though Jobless Claims was slightly better than expected. Analysts were expecting Jobless Claims to turn in a higher 403K but it turned out to be slightly lower at 400K. However, this number is still higher than last week's 398K. This might have put investors on the defensive against tomorrow's Jobs Report. Investors rushed for the safety of bonds today like scared rabbits, depressing bond yields across the board by a leap. Indeed, it felt totally like doomsday in the market today, everything from stocks to gold and oil were affected. In fact, today's drop also took 2011 into an overall loss. Fortunate are those who has "Sold In May and Went Away". Analysts are expecting an increase in nonfarm payroll in tomorrow's jobs report, which will definitely be destructive to the market if disappointed. However, a positive surprise on that front may be the catalyst needed to halt this seemingly unstoppable avalanche.
Technicals
So far, this avalanche has broken many technical short term bottoming indications such as the "Dragon tail formation" I mentioned to paid subscribers yesterday, the 200MA, the volatile sideways channel and even the VIX indication, turning the intermediate trend to bearish. However, just when I was about to be convinced that this bear trend has legs, today's blow off day caught my attention again. It was a strong volume surge with a strong big down candle. Such huge blow off days occurring at the end of significant down trends usually suggest that the last of the sellers had lept into the market, what is known as a "Last Gasp Selling" and that prices may be attractive enough for people to start buying into. We saw the same thing back in 2008 near the bottom of the big bear trend. However, even if it does rebound from this level, it could still amount to a bull trap unless it test and breakout of the 200MA at about 12000. For now, it is still a volatile events driven market that can move dramatically in either direction depending how global issues work out.
For now, the Dow remains in a short term bear trend within an intermediate term bear trend within a primary bull trend.
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Fundamentals
If Tuesday was a slaughter, today's definitely a massacre in the US market. Market opened down and went downwards decisively even though Jobless Claims was slightly better than expected. Analysts were expecting Jobless Claims to turn in a higher 403K but it turned out to be slightly lower at 400K. However, this number is still higher than last week's 398K. This might have put investors on the defensive against tomorrow's Jobs Report. Investors rushed for the safety of bonds today like scared rabbits, depressing bond yields across the board by a leap. Indeed, it felt totally like doomsday in the market today, everything from stocks to gold and oil were affected. In fact, today's drop also took 2011 into an overall loss. Fortunate are those who has "Sold In May and Went Away". Analysts are expecting an increase in nonfarm payroll in tomorrow's jobs report, which will definitely be destructive to the market if disappointed. However, a positive surprise on that front may be the catalyst needed to halt this seemingly unstoppable avalanche.
Technicals
So far, this avalanche has broken many technical short term bottoming indications such as the "Dragon tail formation" I mentioned to paid subscribers yesterday, the 200MA, the volatile sideways channel and even the VIX indication, turning the intermediate trend to bearish. However, just when I was about to be convinced that this bear trend has legs, today's blow off day caught my attention again. It was a strong volume surge with a strong big down candle. Such huge blow off days occurring at the end of significant down trends usually suggest that the last of the sellers had lept into the market, what is known as a "Last Gasp Selling" and that prices may be attractive enough for people to start buying into. We saw the same thing back in 2008 near the bottom of the big bear trend. However, even if it does rebound from this level, it could still amount to a bull trap unless it test and breakout of the 200MA at about 12000. For now, it is still a volatile events driven market that can move dramatically in either direction depending how global issues work out.
For now, the Dow remains in a short term bear trend within an intermediate term bear 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.
8 Straight Down Days... What Does It Mean?
It was a blood bath in the market today as the Dow collasped into its 8th straight down day, closing down by 265 points.
Fundamentals
It was a slaughter today in stock markets around the world following Monday's dismal US ISM Index. The recent economic data seems to suggest that the economic engine that was driving the recovery since 2009 seems to have disappeared all at once, leaving the US economy where it was back in 2009 once again. This brought back fears of a "Double Dip" recession which a lot of analysts seem to be talking about lately even though it has never quite happened before. Indeed, all economic recovery phase go through a period of uncertainty and volatility following the initial push. We saw the same thing back in the last economic crisis. However, its short term effects cannot be overlooked as it can last as long as a couple of years, like we saw back in 2004 to 2005. In fact, today's mixed retail sales numbers really didn't help improve sentiments. Investors rushed back into bonds, pushing bond yields to low levels unseen since Oct 2010. But its has yet to reach the kind of low level we saw back in August 2010 which resulted in a market turn around. Yes, when bond yields are too low to satisfy investors' investment objectives, they will return to equities which will always be selling at a discount then. The next hammer to drop would be this Friday's Jobs Report. If it turns out poorly, we could see this market go much lower. Yes, the economy is almost back down to where it was in 2009... would the stock market do so as well?
Technicals
The Dow made its first 8 straight down days today since Oct 2008 when the bear market at last found a bottom and came to a halt. In fact, 8 consecutive down days are so rare that the last time the Dow did so before Oct 2008 was when the market found a bottom during the last crisis at Sep 2001 and the last time before that was in August 1982, which also found a bottom! Yes, all three times over the past thirty years the Dow made 8 straight down days, the market finds a significant bottom. Could it happen again this time round? Odds are very good due to several reasons; Firstly, the Dow is now at the bottom of its volatile intermediate neutral channel and chances are still good that it will turn around from here. Secondly, the huge dip in the bond yields might encourage investors to return to equities. Thirdly, as I mentioned to paid subscribers yesterday, the VIX dropping in the same direction as the market almost always lead to a turn around within the next few days. Fourthly, the Dow is currently in a deep short term oversold condition so we should see at least a few small up days from tomorrow onwards.
For now, the Dow remains in a short term bear trend within 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
It was a slaughter today in stock markets around the world following Monday's dismal US ISM Index. The recent economic data seems to suggest that the economic engine that was driving the recovery since 2009 seems to have disappeared all at once, leaving the US economy where it was back in 2009 once again. This brought back fears of a "Double Dip" recession which a lot of analysts seem to be talking about lately even though it has never quite happened before. Indeed, all economic recovery phase go through a period of uncertainty and volatility following the initial push. We saw the same thing back in the last economic crisis. However, its short term effects cannot be overlooked as it can last as long as a couple of years, like we saw back in 2004 to 2005. In fact, today's mixed retail sales numbers really didn't help improve sentiments. Investors rushed back into bonds, pushing bond yields to low levels unseen since Oct 2010. But its has yet to reach the kind of low level we saw back in August 2010 which resulted in a market turn around. Yes, when bond yields are too low to satisfy investors' investment objectives, they will return to equities which will always be selling at a discount then. The next hammer to drop would be this Friday's Jobs Report. If it turns out poorly, we could see this market go much lower. Yes, the economy is almost back down to where it was in 2009... would the stock market do so as well?
Technicals
The Dow made its first 8 straight down days today since Oct 2008 when the bear market at last found a bottom and came to a halt. In fact, 8 consecutive down days are so rare that the last time the Dow did so before Oct 2008 was when the market found a bottom during the last crisis at Sep 2001 and the last time before that was in August 1982, which also found a bottom! Yes, all three times over the past thirty years the Dow made 8 straight down days, the market finds a significant bottom. Could it happen again this time round? Odds are very good due to several reasons; Firstly, the Dow is now at the bottom of its volatile intermediate neutral channel and chances are still good that it will turn around from here. Secondly, the huge dip in the bond yields might encourage investors to return to equities. Thirdly, as I mentioned to paid subscribers yesterday, the VIX dropping in the same direction as the market almost always lead to a turn around within the next few days. Fourthly, the Dow is currently in a deep short term oversold condition so we should see at least a few small up days from tomorrow onwards.
For now, the Dow remains in a short term bear trend within 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.
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