Market in a "Wedge"

The Dow gained 145 points today in yet another broadbased rally on even lighter volume.

Fundamentals
US market started off positive and never looked back as bargain hunters continued to buy into the possible end of this intermediate correction. Yes, the rally and optimism is unlikely to be fundamentals driven due to the fact that volume is severely lacking. Furthermore, sales data released today were mixed and does not justify such strong reaction. News on the Greek front is nothing deterministic either. As such, I am of the opinion that the market continue to be technical driven today as was yesterday.

Techncials
Like I mentioned to paid subscribers yesterday, this intermediate correction has the potential to end here if the 200MA continues to hold and the Dow gets back up and stay above the declining 30MA. In fact, a better picture of what is going on now can be seen on the S&P500 chart. As you can see in the S&P500 chart below, the market is now in what is known as a "Wedge". A wedge is when prices are stuck in between a rising support and a declining resistance level. In this case, the market is clearly wedged and squeezed between the 200MA and 30MA now. Wedges show that the market must decide at this point to either breakout above the 30MA and reverse into a bull trend or breakout below the 200MA and resume the bear trend. Yes, it indicates a critical reversal point, which in this case, since the 200MA has proven itself to be an extremely strong support since mid-June, odds now tilt slightly in favor of a topside breakout. Yes, this intermediate correction could end here instead of going deeper into the 50WMA. By "ending here", I don't mean a direct V shaped bottom reversal from this point forward. No, intermediate corrections simply don't give up like that. It will most probably go sideways into a short term volatile sideways trend before reversing.

For now, the Dow turns into a short term neutral trend within an intermediate term bear trend within a primary bull trend.
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Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!

ISM coming up...

The Dow continued its intermediate correction last week, closing down by 115 points last week on a week on week basis.

The intermediate correction continues as the Dow continues to head for its 200MA short term support level. If the support level failed to hold, then a visit to its weekly 50MA (50MA) at around 11,500 would be next. In fact, the last intermediate correction ended around the 50WMA as well. Economic data so far also favored to downside as major leading indicators so far makes their biggest retreat since the recovery begun. This week, the ISM index will be announced on Friday with consensus expecting yet another lower number as economic growth continues to slow down.

For now, the Dow remains in a short term and intermediate term bear trend within a primary bull trend.
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Intermediate Correction Continues...

The Dow ended its recent bull trap and continued to head downwards, closing down by 59 points.

Fundamentals
Economic data continues to favor to downside today as Jobless Claims turned in worse than expected once again. Analysts were expecting a lower jobless claims for the week but actual data came in not only higher than expected but higher than it is last week. This led to an immediate reaction in the US market today, opening downwards strongly. In fact, the Dow went down as much as over 200 points in the morning before bargain hunting stepped in strongly for the rest of the day. Investors were clearly buying into every weaknesses lately as most speculate the end of this intermediate correction.

Technicals
Indeed, this intermediate correction isn't giving up without a fight and definitely not on a V shaped reversal. The Dow headed back down to last week's low before bargain hunting set in strongly. This shows that there is indeed significant strength around the daily 200MA level and that this intermediate correction could end around that area as I have previously predicted. Huge hammer candlesticks like the one formed today usually leads to one strong down day the next day and then we should see some struggle around the daily 200MA level before the market can decide where it wants to go next.

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