Free Stock Market Research Report by Jason Ng, the man behind The Star Trading System (one of the best option trading systems)

We could be witnessing the bottom of this volatile bear trend right now as the economy and the stock market reaches a few very important capitulation points. The Star Trading System agreed with this sentiment with a host of bullish stars today. Lets see if anything goes.

The end of every recessions or bear markets are marked by multiple capitulations in both the economy and the stock market and I think we might be witnessing some of that right now.

Capitulations in the economy:

1. Bankruptcy of major institutions. Every recession or bear market must end with the close down of a few major players and I think we might have witnessed it in Lehman Brothers.
2. Surge in unemployment. Every recession or bear market must end with a huge surge in unemployment. The last recession ended with unemployment rate at 6.3%. We are certainly near that level once again with 6.1%.
3. Sudden and powerful collapse in oil price.

Capitulation in the stock market:

1. Multiple blow off days near critical support levels. Both the Dow and the Nasdaq composite formed 2 blow off days right at the July low levels, once again forming a strong support and a possible rebound. We need to see a J hook over the next few days to confirm this.
2. Rush to Bonds. Every recessions and bear markets also ends when investors are most negative and rushing into bonds. We saw bond yields ditch across the board this couple of days as bond traders rush in.
3. Surge in volatility. A surge in the VIX almost always lead to a significant market rally. The last time the VIX was this high led to the 2 months rally from March to May.

So, why no rate cut today? Because there is no need to. As long as oil price stays below $100/barrel, the lower production price would increase short run aggregate supply to the point where the okun gap could get closed up without an increase in aggregate demand, returning the economy back to near full employment equilibrium. Near? Yes, I am one of those who do not believe that the economy functions at full employment equilibrium for any sustainable period of time. The economy is always either slightly at above full employment equilibrium or below full employment equilibrium. The Fed is definitely more comfortable keeping the economy at slightly below full employment equilibrium in order to keep inflation at bay.

Star Option Trader’s Thought For The Day : "Always Follow The System"

Free Stock Market Research Report by Jason Ng, the man behind The Star Trading System (one of the best option trading systems)

Extreme volatility took over in the US stock market yesterday with the collapse of investment giant, Lehman Brothers. Investors realized that if a giant with such a long history could collapse, who couldn’t? Sentiments went to the floor and under such extreme volatility, it is completely natural for trend trading systems such as the Star Trading System to keep us out by not having any picks today.

If an investment giant like Lehman Brothers could get cremated by the flames of this credit crisis, who couldn’t? But is this the capitulation everyone’s waiting for? Certainly unemployment rate is already near capitulation levels. Does this mean that the kitchen sink is finally draining its last bits? The big thing tomorrow would certainly be the FOMC announcement. With the recent gain in the dollar, the Fed certainly does have all the ammunition to cut rates and start a turn around story (which is also why forex traders have already started shorting the dollar over the past 2 days). Things certainly does look like they are all falling into place.

On the technical front, the Dow broke down and resumed its primary bear trend. Again, not strange to see a little pull up tomorrow no matter how the news turned out. Immediate support on the July low of 10827. The Nasdaq composite also turned back down onto its 2200 support level, closing slightly below that level (not significant enough to call a breakout) with strong volume. As the old saying goes, "there ain’t no such thing as a triple bottom". With the Nasdaq’s declining trendline strongly intact, chances are we will see the continuation of the primary bear trend with immediate support at about 2100.

Star Option Trader’s Thought For The Day : "Always Respect The Market"