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.

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!