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

This is the first time the Dow is up 2 days in a row for the month! In fact, 2 VERY big up days adding up to 546.01 points! The last time the Dow broke over 500 points in 2 days was way back in 2002! So, the market truly is behaving in unusual manners here. Could this be a turning point? Could this lead into the proverbial “Santa Claus Rally”?

Let’s sum up the Fors and the Againsts…

Fors…
1. Oil price took a severe beating (For no reason apparently, Saudis actually commented that they are not going to increase production today).

2. Fed official commented that the Feds need to be more flexible, which increases the probability of a rate cut in Dec.

3. Gold and Bond retreats, indicating a flight to the equities market.

4. Increasing volume going into the past 2 days.

5. Seasonality supports this rally and the public might start pouring into this and make the rally happen.

The Star Trading System seems to think that the bearishness is over at last! There is such a FLOOD of morning stars today!

Againsts…
1. Oil price’s beating before an actual production increase may actually prevent a production increase from happening! The Saudis have defaulted on production outputs under such circumstances many times before.

2. A 25 basis point rate cut has already been fully priced into the market so far, in fact, the Fed Fund Futures have already started pricing in a 50 basis point cut! This means that unless the Fed cut by 100 basis points, it is not going to help at all! In fact, a 25 basis point cut might take the market down on disappointment instead!

3. Today’s market action is a direct result of short covering according to Bob Pisani right off the floors of the NYSE! It has little to do with what the Fed said or how oil prices did!

4. Volume increase was mediocre and non-conclusive… the volume just look too measured for a reaction so knee jerking… the public just ain’t buying into this possible bull trap yet.

This is definitely the reaction rally I talked about in my analysis a few days ago and it sure looks like it is coming to a quick end. The real deal is what happens on the coming pullback. If the next pullback do not bring the Dow back down to the lows of this correction, we might see the beginning of a trend reversal. According to the Dow theory, the pullback of a reaction rally usually determines if the reaction rally marks a trend reversal or trend continuation. It certainly is too early to tell now.

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

FUNDAMENTAL ANALYSIS
Disappointing is the word to use on retail investors these days. See what happened last Friday when retail investors are queuing in front of the marts instead of the exchanges and professional trading takes over? Yes, a huge up day! In fact, institution sentiments continue to be optimistic as indicated by my Institution Sentiment Index and many institutions are now seeing value acrossing the board! What happened when retail investors came back today? No wonder every academia is pushing for the institutionalization of investment!

Incredibly, the waves in the market continues as investors return to take back the market after a nice and long weekend. These are tough times indeed and Star Traders would definitely survive nice and long if we simply follow the rules.

There are simply too much sentiment and too little intelligence in retail investors today! All these decline today were despite a huge Black Friday sales increase by retailers and the Saudis announcing a crude output increase in order to stem the high oil prices! Furthermore, the Fed is actively taking steps before the next meeting to inject liquidity into the banking system through a 8 billion dollars 45 days repo! Yes, 45 days! When was the last time the Fed did that? But what happened in the end? Investors still sold off like a scared bunny. Yes, bond yields are lower across the board as investors exit the equities market in favor of the treasury market but the gradient of the yield curve still suggests that investors continue to believe that inflation will be gradual and that the economy will develop normally! Recession? What recession? Such disgusting pessimism always prevail near market bottoms. Everyone cook up horror stories and then suddenly the market rallies and leaves everyone hanging. What we are seeing is a complete over reaction and over pessimism which is usually a contrarian indicator on itself. Tomorrow’s Consumer Confidence numbers are not likely to do much for the market… we need to see whether the bulls or the bears are in control. As usual, I believe in keeping America great and I believe that open market capitalism is the best path to prosperity and someday, when the Dow is at a million, you want to pat yourself on the back knowing you believed in it this early.

TECHNICAL ANALYSIS
The Dow’s trend line continues to get depressed today in a rare and brutal rough em up pattern that I have not seen since 2001. Analysts may argue that this is the lowest close since April but my take is still that the Low of August is still very much intact and that is the 12517 level. 2 most important words in technical analysis is “PRUDENCE” and “SIGNIFICANCE”. We are not seeing a significant breach of the most prudent support level yet! I think we should get a reaction rally very soon as this market has gone too far down too fast and the quality and behavior of the reaction rally is going to be the most important indication of the primary trend.

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