- 14
- Feb
by Jason Ng, Founder, Master ‘O’ Equity
FUNDAMENTAL ANALYSIS
Sometimes I would rather call Fundamental Analysis, “Sentimental Analysis”. 
Market sentiments took a 180 degrees turn today as the Dow surged 102 on reports that 2 seperate companies are looking to take over Alcoa (AA). AA surged 6.38% in a single day on this news ending up $35.00. These are the kind of news that sends every investor rushing into a single stock. On top of that, oil prices also surged by almost 2% today, lifting the Energy sector to a 3 : 1 advance. All in all, the markets has started out very encouraging this week. Whether this momentum continues or not really depend on how well the heavy weight economic data goes for the rest of the week and what sentiment Chairman Bernanke decides to throw into the market. The market remain highly sentimental and easily shaken by the slightest indication of inflation and weakening economy. Already U.S. trade deficit has widened in December to $61.2 bln in a report yesterday but has so far been ignored amidst the Alcoa excitement. If Bernanke’s testimony and the rest of the data this week prove to be weak, investors will start to take it seriously. Today, participation in the market is not impressive either as volume remains slightly below average for the month. This shows that a lot of investors are still sitting on the sidelines waiting for the heavy weight economic comments and data to hit the wires. Let’s keep our periscopes up while bathing in the excitement.
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TECHNICAL ANALYSIS
Today is a day which is both surprising and not surprising. What wasn’t surprising was the rebound in both the Dow and the Nasdaq composite. They behaved as we have expected and therefore is not surprising. What was surprising was the readiness at which it happened. Even though I expected a rebound in both indices, I really expected the Dow to do so only after another day or two of crawling along the 30 days MA and after the Dow’s short term stochastics has crossed below the 50 line. Well, with today’s surge, the Dow has once again begun the formation of yet another step in its staircase formation. If the pattern holds, we should see a new high by tomorrow. Eventhough all technical indications remain healthy to upside, I do see a negative trend developing in the Dow. The Dow’s rally so far has showed up on the ADX as a healthy, growing bull trend until 27 Nov 2006. Since that day, ADX has been showing a really mixed and uncertain trend and since that day, the Dow’s rally has slowed down and the gradient of its 30 days moving average has declined significantly. The result of which is an extremely choppy market which makes it very hard for short term technical swing traders to take a swing at a home run. If this pattern continues, it will not be surprising to see the Dow slowly and stealthily degenerate into a neutral trend. For now, my sentiments remain the same… Bullish on the Dow and Neutral on Nasdaq.
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