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.

How I made 183% profit from Star Trading System last month and how you can too.

by Jason Ng, Founder, Master ‘O’ Equity

FUNDAMENTAL ANALYSIS
Markets follow up on last Friday’s bearishness today ( Dow - 0.22%, Nasdaq - 0.38% )ahead of Fed Chairman Bernanke’s testimony in front of the Senate and House representatives. After all that hawkish talk by Fed representatives last week, all investors will be peeled to listen out to Bernanke this Wednesday and Thursday for any further clues as to what the Feds might do next. A week of important economic data ahead, dropping oil prices bringing the energy sector down, widely held sentiments that a correction is at our doorstep and volatility caused by an option expiration week, all act together to form the bearish undercurrent that we see now. Oil took a hit today and closed below $58 at $57.90. That caused a broad based decline in the Energy sector with decliners leading advancers 5 : 1. This week’s PPI and Consumer Sentiment numbers would really be the kill or cure of this market now as investors need to see that inflation is under control and consumers are happy before any bullishness will return to the markets.

TECHNICAL ANALYSIS
Back to my favorite section. Sometimes life can be very simple. Just as you would gauge the health of a fax machine by the fineness of its print output and the health of a light bulb by the brightness and consistency of its glow, we can gauge the health of the market by its charts too.

As I have mentioned yesterday, the main things to watch out for this week is whether the Dow and the Nasdaq Composite hold or break their 30 days moving average support level. After today’s 0.22% drop in the Dow, the Dow continues to hold above its 30 days moving average line with significantly lower volume. The Dow may trade atop its 30 days moving average for a few days before continuing its staircase like formation to new highs. We saw the same action on 27 Nov 06 and 25 Jan 07.

How about the Dow popularly being “Overbought”? Well, seriously, how do we determine overbought in this case? The Dow is used to trading in the deep, long and short term overbought condition with very little retreat or correction. That would mean that bailing out simply because it is “overbought” on the RSI or Stochastics do not make very good sense in terms of profit maximisation. The weekly and monthly time frame continues to show higher highs and lows with no clear indication of a correction yet. The 3 days drop in the Dow has also helped it get off its short term overbought condition and that is forming the stage for another possible rebound. Commonly, we see the Dow rebound from its 30 days moving average once the short term stochastics cross down below the 50 line. At this point of time, the Dow’s short term stochastics is still a small leap to the 50 line. That gives more evidence that the Dow will continue to trade sideways along the 30 days moving average while setting its stochastics back down to the 50 line at least.

So, what about the “Bearish” sentiment so far? Well, a bearish sentiment reaches a concensus and really affects the market when we see a ditch along with a surge in volume at a critical support level. After that, the bears should continue to follow up with a few more days of drops along with rising volume to set the bearish engine into action. This was exactly what I saw during the May 2006 correction. So far, I saw neither a neck breaking, support level jarring ditch nor do we see rising volume supporting the move to downside.

Now, am I saying that the market will rise infinitely? Definitely not. I have defined the exact beginning of a correction as “A break below the 30 and 50 days moving average on high and rising volume”. If that happens, we might see a correction as deep as a testing of the 100 days moving average.

Now, what about fibonacci? Well, I still think that is a highly subjective psuedo science that requires the most developed minds in predictive technical analysis to execute reasonably… guess I am just not that highly evolved yet…hahaha.
Well, the Star Trading System is also looking uncertain today with just a few signals.

How I made 183% profit from Star Trading System last month and how you can too.