Dow Caught In A "Wedge"

The Dow gained by 44 points today on the back of better than expected Store Sales and continued bargain hunting brought over from yesterday.

Fundamentals
Even though Store Sale turned in better than expected, Redbook's store sales actually turned in lower than last week. As such, sales data today was actually more mixed than positive. However, investors continued to return to equities on the back of bargain hunting left over from yesterday's optimism. Investors could also be pricing in better than expected performance for the coming leading indicators on Thursday. Analysts are expecting both the Empire State Index and Philley Fed to turn in better than last month this time round and certainly such a turn around in economic data is what investors have been waiting for. However, we have seen what such optimism before major economic releases has done lately; leading to nothing more than a strong profit taking.

Technicals
Clearly the Dow is in some kind of a wedge right now. On the one hand, it is being compressed by a lowering 30DMA into a lowering pennant formation. On the other hand, there is significant accumulative strength around the 11,000 level which we have seen since last month. This has caused the formation of a small lowering triangle formation or a "wedge" formation at the end of the lowering pennant formation. Such formations indicate extreme uncertainty and increases the chance of a significant leg up or down depending on the direction of breakout. Yes, this means that this could be the junction where the market decides where it wants to go for the next month or more. Going by the setups so far and the prevailing intermediate trend, odds would no doubt favor a downside breakout but that's not something you want to put everything you have on right now.

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

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Dow Headed For Bearish Breakout

The world commemorated the 9/11 tragedy today, reminding ourselves how precious peace is.

The Dow turned down by a total of 501 points last week as the Dow headed back down to its 200WMA as I have predicted last week. On the daily scale, the Dow did a textbook style turn around at its 30DMA, heading downwards for a possible bearish breakout of its lowering pennant formation. If the Dow breaks out of this dangerous pattern to downside, we could see a revisit of the 10,000 points level, which is of course back down to 2009 levels which will bring the stock market inline with economic data so far. On the weekly scale, if the Dow breaks out below 10,750 points, it would breach its 200WMA which is always a very dangerous thing to do. Over the past 10 years, everytime the Dow breaks below the 200WMA, we could see significant new lows in the near future.

Good thing for my stock options picks subscribers and Star Trading System students that our system has placed us nicely on the correct side of the market with a couple of good bearish picks so far.
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Dow Forms Lowering Pennant Formation...

The Dow staged a surprise rally today, the kind that we have been seeing over the past month of volatile sideways trend, closing higher by 275 points.

Fundamentals
US market got off on a great start today as a wave of optimism swept over global markets prior to US market opening. In fact, index futures were already pointing sharply higher way before the better than expected sales data from the Redbook report. Investors rushed back for equities once again today in their see-saw game as they did all month long so far. Bond yields rose sharply across the board as investors sold off on the high bond prices and returned to stocks. Traders seem to be convinced that today's rally might be fundamentally different as options traders brought the total equities put call ratio down below par in favor of call options trading for the first time since this correction begun.

Technicals
The Dow revisited its 30DMA once again, continuing its recent behavior of sudden big moves. Today's move however, completed a "Lowering Pennant" or "Bear Pennant" formation, which is an intermediate bearish continuation formation. It is a formation which is formed through an extended period of sideways range bound trading following a significant down trend and is usually limited at the top by the 30DMA or 50DMA. Such a formation usually mean that the market could go either way significantly from here. If the Dow turns down again from here and breaks out to the bottom of the pennant, we could see a very significant new leg down. However, if the Dow breaks out to topside, we could have ourselves a reversal. However, being a bearish continuation formation, odds favor a downside continuation.

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

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