Turn Around Imminent

The Dow continued into its 6th down day last Friday, closing the week lower by 537 points or 4.2%, governed largely by fears surrounding the US debt issue.

Indeed, last Friday's GDP and Chicago PMI did nothing to help the already negative sentiment in the market as both data turned in poorer than expected. Overall, economic data continue to be shaky along with the US debt issue, creating the perfect bearish atmosphere for the market. In fact, bond yields ditched strongly across the board as investors rushed back into the safety of bonds and options traders pushed the total equities put call ratio all the way up to 1.2 in favor of put options trading in a sudden surge. VIX also jumped 6.36% last Friday. However, everytime such a sudden change in all three indicators happen on a single day, it usually means a blow off day and that the trend might just turn around the very next trading day.

Indeed, on the technical front, the Dow also made a strong blow off day with volume surge and a bottom side hammer formation last Friday. This, together with all 3 of the above mentioned indicators displaying blow off behavior and the fact that the market is already down 6 straight days, we could see a turn around as soon as Monday itself. As I have mentioned last week, the Dow is now in a volatile sideways trend within a 12750 and 12000 channel. In fact, the 12000 support is reinforced by the 200MA itself as well. So there is no doubt a short term bottom is here.

For now, the Dow remains in a short term bear trend within an intermediate term neutral trend within a primary bull trend.
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Exhaustion Sell-off?

The Dow sold off strongly by 198 points today as debt talks failed to make progress and economic data continue to turn in worse than expected.

Fundamentals
US market opened negative and sold off right off the gate as Durable Goods Orders disappointed by a mile. This is compounded by the disappointing Beige Book report showing slowing economic growth. By the muted response on the bond yields curve and the huge surge in total equities put call ratio, it does seems like today's sell off came mainly from traders and not institutional investors. This is the 4th straight down day in the US market and the Dow has lost a total of 421 points so far. Lets see if tomorrow's Jobless Claims can surprise positively and stall this freefall. Analysts are expecting a worse number this week so anything just slightly higher than last week would amount to a positive surprise... shouldn't be a hard thing to do.

Technicals
The Dow revisited its 30MA as I have expected in yesterday's email to paid subscribers. However, what was surprising was that it actually broke and closed below both the 30MA and 50MA. Good thing is that it didn't close low enough to constitute a significant downside breakout of both critical short term support levels. Today's huge fall along with the surge in trading volume could amount to a blow off, so we should see a positive day tomorrow. However, lets not forget that we are currently in an intermediate neutral trend, one which has not proven itself capable of turning back up again, as such, any travel within the 12750 and 12000 remains reasonable for the Dow. This 4 days free fall has broken the previous reversal pattern, leaving the intermediate trend once again in neutral territory. This is looking more and more like the big sideways market of 2004. Perhaps such a year of limbo is a must for all recovering markets following every economic crisis.

For now, the Dow turns a short term bear trend in an intermediate term neutral trend within a primary bull trend.
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US Debt Bear Trap...

The Dow retreated 88 points today as a wave of negativity swept across global markets on US debt problem.

Fundamentals
A wave of negativity swept across global markets today as news of US debt problem and the further downgrading of Greek debt ranted throughout the weekend over the media. Starting from Asia, every market opened and remained negative, leading to a deep negative opening in the US market. Indeed, these debt problems are the aftermath of the recent financial crisis and if not handled well, could jeopardize the current global recovery. There is always a period of "toxic clearing" within every recovery phase that could last as long as an entire year, before the real bull market starts. We saw that back in 2004 as well. The Chicago Fed National Activity Index released today also registered its worst level since Oct2009, adding to the negativity today. (The Chicago Fed Index is an index measuring economic activities and inflation on a national level by combining 85 different indicators. Positive number indicates growth above historical trend and negative number indicates growth below historical trend. See Stock Market Calendar.) However, there was clearly a significant level of bargain hunting in the morning session, which goes to show that there is no absence of optimism. This was also reflected in the bond yields rising across the board as investors take advantage of the bargain in the equities market. Indeed, such "debt news" driven drops have the potential to be just a one day affair.

Technicals
A pretty scary looking drop today which looks nothing more than a bear trap. Short term bullish momentum continues to rise on our short term indicators and there is no indication that this is going to be anything significant. As such, I would expect the market to come back up as quickly as tomorrow.

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