This Stock Market Hours Report is brought to you by Jason Ng, Founder, Master ‘O’ Equity

FUNDAMENTAL ANALYSIS
The Dow sheds 108.28 points today to close 15.2 points shy of the 14000 mark. This is also the hardest single day drop since 7 Sep 2007 when the rally just begun. Oil prices has reached high points which nobody has expected, especially with the summer months just behind us. Higher energy always mean higher production prices (which showed up in the PPI index last week) and increases the possibility of inflation. Early optimism in the market futures just before market opens due to a better than expected Empire State Index reading was immediately erased. Well, the Empire State Index has never been a major market moving index. The Empire State Index tracks manufacturing activities in New York on a monthly basis through a survey of a goup of 175 manufacturing CEOs. Well, you guessed it, when did New York’s small community of manufacturers become a major or significant determinant of overall economic health? That is why the Empire State Index continues to be one of those index which fails to move markets significantly. Again, no prime market movers tomorrow as we look forward to Wednesday’s CPI numbers. More and more analysts are now gloomy about the possibility of another rate cut at the end of the month. However, our dear Uncle Ben continues to be careful and wary about economic outlook in his speech today in Washington. Obviously things are not as rosy as we thought… yet…

The Dow dropped by more than 100 points for the first time since the rally begun, yesterday. This is the first time in the rally which the Dow fell by such a magnitude. However, instead of flooding us with a ton of evening stars, like the Star Trading System always do when the Dow drops and is expected to go into a correction, the Star Trading System is giving us a fairly equal number of both stars…. does that mean the Dow is not yet ready for a real correction? The market remains sideways and uncertainty. Uncertainty means that the market can sudden go up or down before you can react to it and therefore makes it extremely dangerous to be holding any positions. That is why the Star Trading System has not been giving us new positions so far. Again, as Star Traders, the elite of the swing trading community, we must be patient, like a hawk…

TECHNICAL ANALYSIS
Well, can’t say I wasn’t surprised with the magnitude and eagerness of the pullback today. The only consolation is that the Dow continues to close near the 14000 line, in line with my expectation of trading along the 14000 line until the 30MA catches up with it. Yesterday’s action took the Dow off the short term overbought region in one fell sweep but has also started a bearish momentum as our trend indicator turns for the first time since the rally begun. Well, regression to the mean is not just a mean old theory, but a fact in all areas of life, including the stock markets. What has baffled scientists and mathematicians (and to some extend, economists like us) is what constitutes the “mean” under each circumstances. I have my own research and empirical data which are not yet conclusive, however, it seems to have been pretty consistent so far for the Dow. Yes, you guessed it, the 30 days/weeks/month Moving Average. So, what is my take for the next couple of days? No guarantees but I would not be surprised if the Dow decides to visit the “mean”.

Thought For The Day : “Rules Are The Chains Within Which One’s Emotions Must Be Contained”

This Stock Market Hours Report is brought to you by Jason Ng, Founder, Master ‘O’ Equity

Weekends always feel short.

The Dow continues to look good as long as it continue to digest more of its short term overbought sentiment by trading atop the 14000 line for perhaps another few more days. On the weekly scale, the Dow is trading reasonably higher than the 30WMA but not high enough to cause an immediate concern. As long as the 30WMA continues to catch up, the bull run can be expected to continue healthily.

It is going to be another heavy weight week ahead with the CPI (consumer price index) coming up on Wednesday (see economic calendar). The Consumer Price Index is one of the 4 super market moving indexes (the other 3 being the Employment Report, ISM index and PPI). The Consumer Price Index, along with the PPI are closely watched inflation indicators by the Fed and will definitely give investors an indication of the possibility of a rate cut at the end of the month. Certainly, investors are looking forward to a lower than expected inflation number.

The Dow has been wavering and uncertain at the 14000 level for a week now and its outlook continue to be uncertain with the PPI numbers coming out this week. The Star Trading System also stood on the sidelines today with only 2 signals.

Thought For The Day : “Every Morning Marks A Brand New Beginning”