Tailwind on US Markets - Will Dow Gain 200 points Today?

US stock futures are showing gains. There are more than one third of Dow components who will be announcing their earnings this week. So its a big earnings week ahead. It seems Dow is on course to cruise to its 200 Day Moving Average(DMA) of 16588 and beyond. In absolute terms this means we are about 200 points shy of 200 DMA in Dow. In today's trade it will be interesting to watch whether Dow can reach this target of 16588. This 200DMA being the first resistance for Dow on its present journey of recovery, it is expected to retrace its step from this level to some extent.

In short following are couple of interesting things to watch for in Dow today, if you are on the long side of trade :-

1. Will Dow reach its first resistance level of 200 DMA?
2. If Dow reaches 200DMA, will it close above it or not?

If Dow closes above 200DMA, then we can expect a move up to 16900 in this week. If Dow closes sharply below 200DMA then it runs the risk of  revisiting the lows of last week- a terrifying thought for the bulls!

Though Asian markets have done well for themselves today, European markets are down on bad news from a major German software maker. We need to see whether the tailwind of expected good earnings week ahead will work for Dow or will European Wall of Worry will drag it to last week's levels. Whichever way you look at it, today's action in US markets will set the tone for the week ahead

Dow Witnesses Healthy Bounce

On 17 Oct 2014 Dow made a remarkable comeback to post healthy gains of 263 points (+1.63%). This was after posting steep losses for six straight days from 17000 to sub-15900. Yesterday's price action suggests that Dow is on course to reach its 200 day moving average line of 16588, which will be its first resistance level. In my last two posts I had held that view even when Dow was experiencing massive intra-day sell offs. It appears that my stance has been vindicated by yesterday's market action.

That said, we now need to be more vigilant of movement of Dow. If you recall in my very first blog post, I had given target of 18000 for Dow from level of 16400. That still remains a possibility in case the following conditions are met :-

1. Dow during this present rally should not violate its hammer price of 15855.
2. Even if Dow gets resistance from its 200 day moving average line at 16588, it should not close below 15855.
3. After crossing its resistance at 16588, Dow should close above 17100 for it to reach its target of 18000.

In case the above mentioned conditions are not fulfilled then we need to be fearful. Let me explain. After reaching or crossing its resistance of 16588, Dow will be susceptible to reverse direction. And if it decisively reverses direction from there, then we can forget about target of 18000. On the contrary we will witness a huge bout of selling which will take Dow way below 15900. In fact it will officially announce the beginning of a prolonged Bear Market and then we can discard all notions of it being only a correction.

The susceptible zone from where Dow can reverse direction is 16600 to 16900. If that happens I would advice all to sell their entire portfolio and sit on cash - because journey downhill will be very steep and unforgiving to investor wealth. In such a scenario we will be looking at sub-10000 in Dow over two-year period.

Keep a sharp lookout for conditions mentioned above. For any clarification, do feel free to ask me through the 'Comments' section of this post. Best of Luck!

Deep Cuts in US Equity Markets

Dow closed at 16117, down 25 points, on 16 Oct 2014. This may be considered as a breather for traders on long side. It could have been much worse. Day low was 15935 and hence the hammered price of previous session has  held. You would recall that in my preceding post I had mentioned about "Hammer" formation in Dow chart on 15 Oct 2014; and hence the day low of 15 Oct 2014 of 15855 should hold for the time being.

As long as this hammer price of 15855 in Dow holds, we can be sure that prices will drift northwards. This upward movement should take Dow to 200 day moving average line of 16588. However this journey is expected to be volatile because deep cuts take time to heal.

Mayhem At Wall Street

On  15Oct 2014 US equity market collapsed to such an extent that it felt like a mini crash. Dow Jones Industrial Average capitulated from day high of 16313 to a day low of 15855, finally closing at some respectable score of 16141. One can well imagine the plight of traders on the long side who had to endure a plummet in Dow of 458 points in single trading session. It must have felt as if the Day of Reckoning has come.

The silver lining to this scary tale is the closing point of Dow. The recovery in late trade was remarkable and it is harbinger of better things to come. Technical chart of Dow is showing a 'Hammer' in candlestick pattern. This means that Dow for the present should not go below 15855. In coming days we can expect Dow to rise from this hammered price of 15855 to at least 16588, which is the 200 day moving average line.

Good Luck!

Dow Witnessing Tug of War Amid Bulls & Bears

On 14 Oct 2014 Dow closed in negative territory, down a mere 5.88 points or 0.04%. It was the straight fourth down day for Dow. This happened after Dow steadily climbed above 16450 in morning trade. The slide was unnerving for some. It showed how all strengths were sold into. Sell on rise must have been the call amongst influential traders. Bulls must be licking their wounds after this sustained Bear hug in second half of trade yesterday.

Now the clamour has grown louder that Dow has entered Bear territory. "Sell your portfolio and sit on cash"  is the advice from experts. They are pointing out that Dow has decisively broken below 200 day moving average. This is construed as significant pointer to Bear market and a clear signal for the end of Bull run. I beg to differ.

For last two decades, every time Dow has violated 200 day moving average it has bounced back with fresh vigour to go beyond its previous high.  You can check the veracity of my observation from record of Dow movement in recent past. In June 2012 Dow dropped below 200 day moving average almost to a level of 12000. Within about four months it rebounded to above 13500. Again in Nov 2012 Dow pulled back below 200 day moving average to level of 12500, only to bounce back with vengeance to 16600 by Dec 2013. In Feb 2014 it again violated 200 day moving average of 15500, only to spring back to 173500 in Sep 2014.

My short point is that closing below 200 day moving average encourages Bulls to pick up stocks at relatively comfortable prices. And that is what is expected of Dow in coming days. If that doesn't happen then Dow will make history of sorts by not bouncing back above its previous high after breaching 200 day moving average for the first time in 25 years!!

Now lets wait and see in coming days whether I am on right track. If you recall from my preceding post, I had set the target for Dow to move from level of 16400 to 18000. We are witnessing these gyrations and volatility in Dow as precursor to positive rebound, which will take it beyond its all time high. Isn't it how Dow has behaved in the last 25 years? So stay invested and trade on the buy side.