FUNDAMENTAL ANALYSIS
Markets were up marginally yesterday as investors show slight signs of bullishness ahead of the FOMC release today along with a 5% spike in oil prices lifting the energy sector. The oil rally yesterday has been the combined effect of the cold weather returning and OPEC returning to talks on further production cuts. The recent drop in oil price has been the direct result of lower demands due to a warm winter. With the chill returning and lifting demand, it is certainly not strange to see oil prices getting back up to where it was before the drop early this month. Analyst continue to suggest that oil prices should stablise between $55 and $60 and frankly, that is my take on oil too as OPEC simply cannot stand watching oil prices go down below $50. Consumer confidence index released yesterday also edged up from 110.0 to 110.3, showing a marginal increase in consumer confidence in January. This is also the highest level in 5 years suggesting that consumers are driving the economy and should continue to do so in the coming months. Consumer spending makes up about two thirds of the US economy and that makes the consumer confidence index an important economic indicator. Well, so far, before the FOMC release today, everything looks rosy and pretty. The next few days will reveal the true effects of today’s FOMC release.

TECHNICAL ANALYSIS
Oil price formed and completed a cup and handle formation at last. I have suggested in my post on 23 Jan 07 that oil prices might not go straight up but would form a cup and handle formation before going up and yesterday, we witnessed that coming to be. We should see a testing of the $60 psychological resistance level soon and with oil prices showing a short term overbought condition, that resistance level might be a tough one to break. Both the Dow and Nasdaq continued to trade and close sideways yesterday as everyone awaits the FOMC release and its effects. Yes, we all know what the release will most probably going to be but we cannot predict its effects. I noticed the Nasdaq composite made a small but important move yesterday and that was, its closing above its 50 days moving average at last. Yesterday, I was concerned that the 50 days moving average is subtly turning into a resistance level instead of a support level as it has traded below it for 5 of the past 6 trading days. Today it seems like it no longer the case and with short term stochastics in oversold condition and turning upwards, there is strong potential energy in the Nasdaq composite to stage a rebound. Looks like the “Black & White Brothers” formation is working this time round. The Dow still looks healthy and ordinary as before, waiting to make yet another new step in its staircase formation to a new historical high.

Star Traders should continue to stay put today and start trading only from tomorrow onwards.

Jason Ng
Founder, Masters ‘O’ Equity
mastersoequity.com
“Your Personal Stock Option Mentor”

FUNDAMENTAL ANALYSIS
Markets closed marginally up as investors sit on the only day of the week without any critical economic releases. Such is the typical behavior just days before every FOMC releases. Even though it is almost certain that interest rates are going to stay stagnant, investors are expecting the Feds to put on a hawkish stand about future interest rate movements, leaving a lot of investors on the fence, waiting to see the initial reactions to the release. Yesterday’s trading volume is the lowest so far for 2007 and CBOE’s equity put call ratio remained relatively stagnant. Is this the fabled calm before the storm?

TECHNICAL ANALYSIS
Markets closed sideways yesterday as both the Dow and the Nasdaq composite struggled to stage a rebound. The Dow closed sideways but traded above its 30 days moving average support level for whole of the day to close right on top of it again. This is again a healthy sign that the support level for the Dow is strong and investor sentiments remain bullish inclined. This gave the Dow a high chance of rebounding off this level to form yet another step in its staircase formation and therefore yet another historical high. This little consolidation has also helped the Dow get off its short term overbought condition, thereby giving it more headroom for growth in the short term. The Nasdaq composite is, again, slightly more shaky. Even though it has been trading sideways these 2 trading days, it has closed right below its 50 days moving average support level in a fashion which almost transforms the support level into a resistance level which is hard to break upwards from. Over the last 6 trading days, the Nasdaq composite has closed just slightly below its 50 days moving average for 5 of these days. Even though support and resistance level analysis is not a precise science and such situations are common, it still does cast a hawkish shadow. One reassurance at this point is that the Nasdaq composite is forming yet another “Black & White Brothers” candlestick formation. (Please read my post on 21 Dec 2006 for explanations HERE.) This is a high probability bullish formation, even though it failed to effect a rebound on 21 Dec, it still does have a large string of successes going back.

Well, all Star Traders should not put on new positions for real in accordance to the new rules now as it is just 1 day before FOMC already.

Jason Ng
Founder, Masters ‘O’ Equity
mastersoequity.com
“Your Personal Stock Option Mentor”