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

The second week of every trading month usually starts weak and with some profit taking like this. The first week of every trading month is packed with so much important economic releases and excitment that the second week usually starts by taking some of that profit away. So, what are we looking forward to this week? The PPI of course. The only heavy weight release for the week. ( please see http://www.mastersoequity.com/option_trader_hq.php for economic calendar) For now, the Dow continue to trade sideways in a very tight channel around recent highs, with short term overbought sentiments digested quite nicely. It does seem like there are just slightly more upside to come, probably pricing in the PPI results for the week, before the Dow over extends on a weekly time frame, inceasing the probability of a pullback to the weekly 30MA again.

The Dow looks slightly over extended now and uncertainty is beginning to set in. Why doesn’t stocks / market go up and up ceaselessly? Well, there is an explanation for this in my field of behavorial finance and it is a common economic theory called the law of diminishing marginal utility. The Law of Diminishing Marginal Utility states that satisfaction with something decreases as more of that same thing is given to a person. When stocks/market start to rise, everyone’s happy and either buys more or hold on, pushing the stock/market higher. As more and more profit is added on to everyone, the satisfaction of that profit diminishes as profit increases and be replaced by the fear of losing the profits that have been earned so far. It will come a point in time where the “Marginal Utility Of More Profits” becomes lower than the “Fear Of Profit Loss” and then investors starts to take profit. This point seems to be unusually correlated amongst human beings and starts a rush to take profit when the first ones succumbs to this phenomenon. That is why every stock/market pullbacks no matter how good the outlook is.

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

The Dow climbed a fairly nice 170.38 points last week. So far, all economic data are supporting the possibilities of more rate cut this time round, probably another 25 basis points. The only surprise I had was the employment report last Friday. I was expecting optimism in the market only if the employment report also turn in a little gloomy BUT NO! What happened was a textbook response to the employment report which turned in much much better than expected! Equities futures SOARED at 0830am when the report was released and a huge wave of optimism roared through the financial system, lifting equities and the dollar in a response we learnt only in our finance textbooks. (ok, for once the textbooks were right!) With the numbers continuing to point towards a rate cut when the Fed release their policy statement end of the month, I would expect further pricing in of the rate cut throughout the month at decreasing velocity.

The Dow looks like it is preparing to price in more of the possible rate cut a the end of the month right now as the Star Trading System floods us with morning stars once again.

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