FUNDAMENTAL ANALYSIS
The stock market took all of us by surprise yesterday. It felt like our travel bus has just been car-jacked just a stop from our travel destination. Just when the market is picking up on all the fantastic earnings coming in these 2 days and the great economic data, existing home sales reported a “larger than expected” decline. This, again sparked new worries on whether the housing sector is indeed coming to a soft landing as billions of dollars are at stake there along with billions in mortgage and whether the Feds would cut interest rates soon. The US treasury’s benchmark 10 years note also rose to 5 months high, breaking the 4.8% barrier. This further encouraged exit from the equity market in favor of the bonds market. Yesterday saw the hardest one day fall of 2007 so far and it all happened so fast that it caught all of us by surprise. So, if this is happening despite as the great releases so far, then there is little fundamentals we can fall back on to look into the future… let’s go technical…

TECHNICAL ANALYSIS
Talking about a hard hard fall. My mentor used to tell me that the bulls take the stairs and the bears jump off the windows… that was what we witnessed yesterday. The Bears took out in one day what the bulls built in 2 days. Both the Dow and the Nasdaq composite are back down to their respective 30 days MA and 50days MA support level. The candlesticks are showing a bearish engulf formation which indicates a strong and sudden shift of investor sentiment from bullish to bearish. All momentum indicators also showed a sharp reversal of momentum to downside. So, are we still safe? Yes, but we are certainly at the edge of the cliff once again. The Dow is still riding above its strong 30 days MA support level and many times, it has bounced off this level after strong sell-offs like we saw yesterday. One example would be the 1.29% sell-off on 27 Nov 2006. In the same way, it took the Dow back down to its 30 days MA and then bounced off nicely to new highs. We have yet to see a breach in the 30 days MA and a testing of the 50 days MA yet, but if it happens, it might be a prelude to something less pleasant. For the Nasdaq Composite, we are back where we started last week… if the 50 days MA fails, we should see a testing of the 2400 level, failing which, the Nasdaq Composite would go into a bear trend like the one we saw in May 2006 when it failed its 2300 support level. Yesterday’s action took both indices back down from an uptrend classification to a neutral trend classification. Traders need to be wary. It seems like January has always been a rather turbulent month over the past few years and yesterday’s market action took me totally by surprise. Again, the adage goes “The market has a mind of its own”… it does not necessarily follow the expectations of mere mortals.

Never has the market been more turbulent and all students are lucky to be going through this with me now and learn.
Jason Ng
Founder, Masters ‘O’ Equity
mastersoequity.com
“Your Personal Stock Option Mentor”

FUNDAMENTAL ANALYSIS
The Techs has been in a slumber whole winter with lacklustre performance and earnings expectations, however, with Yahoo and Sun Microsystems inc. released favorable earnings report, investor confidence in the techs returned and lifted the markets broadly as a result. Ebay also rallied 4.85% in a day, Xilinx up 4.32%, Intel up 1.41%, Marvell Tech up 5.45%, Broadcom corp up 4.18% and Microsoft up 1.14%. It was as though the flood gates are suddenly opened and a rush of optimism flooded the markets. Even the “Sell-The-Tech” Cramer with his pessimism about the Tech sector, gave 2 tech picks today. There are no new economic data to support this sudden optimism and oil was up another $0.33 on unfavorable oil inventory numbers, so it seems like investors are indeed waiting for some great earnings release from the tech front before committing to the markets.

TECHNICAL ANALYSIS
Well well, just when we are about to lose hope in the Nasdaq composite, it rebounded off its 50 days moving average support level at last! This move alone totally negated the short term ditch that we have witnessed last week and, as I have said a few days ago, a rebound off this level could mean more upside to come. But didn’t the index close marginally below the 50 days MA twice? Well, that is a common behavior of all support levels. Prices don’t just rebound right off a support level, although sometimes they do. Most of the time, prices go slightly below it, bobbing up and down the surface very slightly before bouncing off. When we see such a slight breaching of a support level, we need to see a follow up on that breach the next day and then identify the next support level instead of falling into a panic. As it turned out, there was no follow up on the breach in this case and the Nasdaq composite rebounded nicely after accumulating some potential energy. The Dow continued to move according to plan, making yet another historical high, with no surprises at all. The Dow continues to be in a bull trend while the Nasdaq composite needs to break the 2500 to return to a bull trend from the current neutral channel. There is an obvious channel formed between the 2500 and 2450 level right now.

The Star Trading System followed up on the optimism with a full house of morning stars today. Let’s see if we can get some good practise today.

Jason Ng
Founder, Masters ‘O’ Equity
mastersoequity.com
“Your Personal Stock Option Mentor”