Wednesday, 3 September 2008

Which Way is Up?

(reproduced with permission from Absolute Traders)

We had something unusual that happened yesterday. A confluence of different events resulted to what we didn't expect to happen in the end. So where do I start?

Initially, the futures of DJIA were down due to Hurricane Gustav nearing leandfall and this resulted to oil jumping higher. As the hurricane was lashing the southeast area of the mainland, it became weaker, which also resulted to worries from oil traders being eased and this resulted to oil dropping below $110. This now translated to giving the index futures a big boost.

In fact, when the market opened, it was so strong; it even reached an advance of nearly 250 points. Yet, the final result showed the index dropping by 26.60 points. This was a result of reality setting in (global slowdown) and this set oil rallying higher again.

Technically, this resulted in what we call an outside day. This happens when the day's high is higher than the previous day's high, and the low is lower than the previous day's low. It is said that when this happens, the movement follows where the close occurred. In this case, it closed low.

From our standpoint, we are still bearish with the US market as the DJIA seems to be completing a small head & shoulders formation which would serve as a continuation for the downtrend. The market is still very confusing that a lot of traders get disheartened after seeing winning positions turn into losing ones almost overnight. It's best to stay on the sidelines for the moment.

Recommendation: Wait and see.
Support: 11,333
Target: 10,613

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