What was shaping up to be a positive week last week ended up with a huge ditch on Friday, closing the Dow down -0.41% week on week.
Even though GDP didn't beat consensus last Friday, it was still very impressive and pointed towards strong economic recovery and should not have spurred the strong sell off. Consumer sentiment later last Friday also extremely strong and beat consensus. Consumers are the backbone of the US economy and happy consumers definitely lead to a happy economy. So, what really happened last Friday? Why did the Dow drop 166 points in a single day?
First of all, lets put matters into perspective. 166 points drop in the Dow on a single day isn't a big deal. On days where there are truly huge market driving bad news, the Dow typically drops anything from 200 to over 300 points in a single day. Secondly, such 100+ points single day drops are normal "breathers" in every bull market. Just look back at the numerous such single day drops in the past bull trends. In fact, most of such drops recover almost the very next trading day, as such, we should not read too much into such single day drops. Single day drops only sound an alarm when the following trading day remains red. It is then we need to make a reassessment of the situation and see if there is strong evidence that the market is turning around significantly. Currently, there is no evidence that this single day drop means anything more than a healthy breather leading to higher highs.
This is also Chinese New Year week. Chinese New Year does not affect the US market like Chrismas and New Year Day does so traders should not be overly concerned. This is the first week of February 2011 and we are getting those heavyweight economic data once again. Monday's Chicago PMI would shed the first light on how Tuesday's ISM index might turn out. Generally, consensus is mirroring the current volatile economic data period and is expecting some pretty volatile results as well. This is the period to take a longer perspective and survive the short term volatility.
Here's wishing all my Chinese readers a very happy and prosperous year of the Rabbit! Gong Hei Fat Choy!
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Housing Data Continues To Look Good...
The Dow closed marginally higher by 4 points in yet another sideways day amidst mixed economic data.
Fundamentals
Market opened in the red on poorer than expected durable goods orders and jobless claims but took back lost grounds as the housing market continues to show signs of sharp recovery. Pending Home Sales rose 2% in December and certainly paints a consistent picture with the better than expected New Home Sales released on Wednesday. Indeed, a recovering home market is essential to overall economic recovery. Of concern today is the far worse than expected jobless claims which the regulators are blaming the heavy weather for. The surge in jobless claims has also resulted in the 4 weeks moving average for jobless claims turning upwards, which is discouraging at this critical stage of economic recovery. However, the US economy is currently going through a temporary period of volatile economic data and investors should maintain a longer perspective. Yes, economic numbers are like the stock market, going up in waves and never straight up. What investors should take note of is that the overall trend still points towards economic recovery and sustenance of the current primary bull trend.
Technicals
The Dow has been struggling at its current short term resistance level of 12000 all week but has yet to show any sure signs of weakness. Even though the Dow made a sideways day, the S&P500 and the Nasdaq Composite both made healthy advances and are both yet to enter short term overbought condition, as such, there is no reason to doubt that the current bull trend still has legs.
For now, the Dow remains in a short term bull trend, intermediate bull 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
Market opened in the red on poorer than expected durable goods orders and jobless claims but took back lost grounds as the housing market continues to show signs of sharp recovery. Pending Home Sales rose 2% in December and certainly paints a consistent picture with the better than expected New Home Sales released on Wednesday. Indeed, a recovering home market is essential to overall economic recovery. Of concern today is the far worse than expected jobless claims which the regulators are blaming the heavy weather for. The surge in jobless claims has also resulted in the 4 weeks moving average for jobless claims turning upwards, which is discouraging at this critical stage of economic recovery. However, the US economy is currently going through a temporary period of volatile economic data and investors should maintain a longer perspective. Yes, economic numbers are like the stock market, going up in waves and never straight up. What investors should take note of is that the overall trend still points towards economic recovery and sustenance of the current primary bull trend.
Technicals
The Dow has been struggling at its current short term resistance level of 12000 all week but has yet to show any sure signs of weakness. Even though the Dow made a sideways day, the S&P500 and the Nasdaq Composite both made healthy advances and are both yet to enter short term overbought condition, as such, there is no reason to doubt that the current bull trend still has legs.
For now, the Dow remains in a short term bull trend, intermediate bull trend within a primary bull trend.
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Sales Hit By Heavy Weather
The Dow closed marginally lower by 3 points in a largely negative day rescued by last hour buying.
Fundamentals
Investors were discouraged by worsening sales data the very moment market opened. Both Store Sales and Redbook worsened due to heavy weather in the East, leading to the Dow losing as much as 81 points in the afternoon. However, on the bright side, consumer confidence picked up sharply for the month on improvements in the job market and that might have been the catalyst for the final hour bargain hunting which brought the Dow back up to almost breakeven for the day. This is also supported by a surge in call options buying, bringing the total equities put call ratio to up almost par. Tomorrow's FOMC announcement is likely going to see a slow morning session with low volume before the market react to whatever the announcement may be in the afternoon.
Technicals
The Nasdaq composite completed a rebound off its daily 30MA short term support today, which could provide some strength for the market over the next few days. However, the Dow and S&P500 continue to lose short term bullish momentum on our technical indicators which supports the view that the market is currently overextended for the short term. However, the market can do two things to digest such short term overbought condition; 1, to retreat to its short term support level before rebounding or 2, to move sideways until the 30MA catches up. The Nasdaq composite has clearly performed action number 1 while the S&P500 looks like its moving for action number 2. The respective daily 30MA would be critical for continuing this all out bull trend, failing which, the market could go into a significant consolidation like the one back in November 2010.
For now, the Dow remains in a short term bull trend, intermediate bull 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
Investors were discouraged by worsening sales data the very moment market opened. Both Store Sales and Redbook worsened due to heavy weather in the East, leading to the Dow losing as much as 81 points in the afternoon. However, on the bright side, consumer confidence picked up sharply for the month on improvements in the job market and that might have been the catalyst for the final hour bargain hunting which brought the Dow back up to almost breakeven for the day. This is also supported by a surge in call options buying, bringing the total equities put call ratio to up almost par. Tomorrow's FOMC announcement is likely going to see a slow morning session with low volume before the market react to whatever the announcement may be in the afternoon.
Technicals
The Nasdaq composite completed a rebound off its daily 30MA short term support today, which could provide some strength for the market over the next few days. However, the Dow and S&P500 continue to lose short term bullish momentum on our technical indicators which supports the view that the market is currently overextended for the short term. However, the market can do two things to digest such short term overbought condition; 1, to retreat to its short term support level before rebounding or 2, to move sideways until the 30MA catches up. The Nasdaq composite has clearly performed action number 1 while the S&P500 looks like its moving for action number 2. The respective daily 30MA would be critical for continuing this all out bull trend, failing which, the market could go into a significant consolidation like the one back in November 2010.
For now, the Dow remains in a short term bull trend, intermediate bull 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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