Is Strong Weekly Rally In US Markets Convincing Enough?

US markets had another splendid day of trading, with bulls raging all the way. Dow closed with gain of 128 points and in the process exhibited some resolute buying action in second half of  trading session. The past week saw US markets register a strong rally after a long time. But since Dow closed at 16805, it is considered to be moving inside the correction zone of 16600-16900. Hence it is still susceptible to correction.

However in the end, markets will be markets. For all you know Dow can make a V-shaped recovery without much of a correction and go beyond its all time high. It is a possibility, even though a remote one. For taking action in the US markets traders need to weigh in all the possibilities and trade accordingly. That sounds quite cliched! Hence to qualify and quantify my statement I am going to discuss various levels possible in Dow and recommend action for successful trade.

From the present position Dow can move in the following possible ways :-

1. Dow keeps moving northwards without any correction and reaches level of 17350 (its all time high). This situation is highly improbable. But if that happens then one can go short from 17350 level for quick profit of 400 points in Dow.
2. Dow fluctuates in its correction zone of 16600-16900 and then closes above 17100. In this situation one should go long for target of 18000.
3. Dow fluctuates in its correction zone of 16600-16900 but reverses direction without closing above 17100. In this situation one should go short for target of 15400. This situation is of high probability.

Tread carefully as you trade, its a minefield out there!

Dow Prances In Correction Zone

Dow gained healthy 217 points in last trading session. It was a bit surprising, but such movements can be expected once the index is in a band where correction has to take place. As I maintained in my earlier posts also, Dow has to go into a correction from its correction zone of 16600-16900. Within this band there will be volatile movements if you are tracking the index daily.

Yesterday Dow was buoyed by good set of earnings results from some Dow components. Today Dow is likely to go into negative territory with the Ebola scare in US. Such daily news will effect Dow movement in volatile manner till the time it is in correction zone.

News of major consequence is that Stress Test result of Eurozone banks are going to be to the liking of investors. The results will  be declared coming Sunday. Most banks are going to make the grade. Only a dozen of very small banks are likely to fail. This will boost investor confidence in Eurozone and is likely to propel  markets higher.

Dow Nosedives To Negative Territory

US markets ended in red in yesterday's trade. Dow lost 154 points from previous close. The slide was significant since there was no real effort to recover from day's high during the entire trading session. That is not to say that all is lost and the slide has finally begun. Far from it.

In my previous post I had mentioned that Dow would gravitate into negative territory since it has reached the correction zone of 16600-16900. And yesterday we found Dow do exactly that. This situation should prevail till result of Stress Test of Eurozone banks are declared on Sunday. In other words we still have to endure selling bouts for two more trading sessions.

Today we may witness some bounce in Dow in initial trade. But in all likelihood this bounce will be sold into. 'Sell on Rise' may be the refrain in today's trade in US markets. The bigger question that begs an answer is whether consumer spending in the coming holiday season bring the much needed cheer to stock markets. Its a complicated situation mired in many 'ifs'.

Stay tuned to these pages and I will guide you through the noise and rumble of stock market movements. US markets are in focus for the present so that you do not make any cardinal mistake in trade in Indian markets. Before US markets are poised for their final move into the Bear Phase, I will announce the event so that stock market participants can exit Indian markets also. My focus on US markets will help in determining that day. Remember that crash into Bear Phase will be witnessed in tandem across all world markets.

Trust me to give you the call before the markets crash.

Dow Enters Correction Zone

When bottom seemed to be falling apart in US markets, I had predicted that Dow will bounce back to 16588 At that time Dow had breached sub-15900 with ferocity of 500 points intra-day dip. You can check out my post here.

Next day I reiterated my view and kept a buy for Dow in this post. And next day again I was certain of Dow cruising to 16588 in this write up. I kept up the target of 16588 and beyond for Dow for two more consecutive days with these posts : http://shurojit.blogspot.in/2014/10/tailwind-on-us-markets-will-dow-gain.html and http://shurojit.blogspot.in/2014/10/european-markets-bounce-back-will-dow.html.

In yesterday's trade Dow reached 16588 and went beyond to close at 16615. That is completion of the first predicted move! You would recall I had mentioned 16600 to 16900 as correction zone for Dow in http://shurojit.blogspot.in/2014/10/dow-witnesses-healthy-bounce.html. Now that Dow has entered this correction zone, we need to watch behaviour of Dow very carefully for signs of deep reversal.

In all likelihood, today should be a flat day for Dow. We can expect Dow to drift into negative territory till the result of Stress Test of Eurozone banks is declared on Sunday. There is rumour that 11 banks are likely to fail this Stress Test. Lets wait and watch!

European Markets Bounce Back - Will Dow Follow Suit?

Today European markets are in a tearing hurry to regain lost position. There seems to be yule-tide spirit in European markets. This buying frenzy can be a misplaced sense of celebrations in Europe, since nothing much has changed overnight for European markets to cheer so much. Given that European Central Bank(ECB) has indicated Bond buying program to stimulate its economy, but is that such a positive for European markets? So far ECB President, Mario Draghi has promised much and delivered very little to European Union in his tenure of three years. Hence this indication of Bond buying by ECB needs to be taken with a pinch of salt.

That said, the good investor mood in Europe should rub off in US markets today. Yesterday Dow didn't do much to help the Bulls. Today we have another chance for Dow to touch its 200 DMA at 16588. The same conditions hold for movement of Dow as I had mentioned in my last blogpost.

Watch as the story unfolds today in US markets.