Trading and investing for beginners can often be a minefield of confidence sapping, money draining traps. There is a never ending abundance of market news and information for the stock investor or trader to digest.
Being able to cut through the reams of information and misinformation is one of the greatest challenges confronting new investors and traders. If you want a real stock market tip, I suggest you read the next paragraph over again until you fully appreciate it:
To be successful in trading or investing YOU must develop the ability to QUESTION, seek ANSWERS and finally ANALYSE what is happening in the economy, the financial markets and the individual companies listed on the stock market.
In an earlier post we looked at some of the questions you should considering during the earnings reporting season. In this post we’ll look at some of the issues confronting the world’s major economies and we’ll analyse how the Dow Jones Industrial Average is tracking after the first week of earnings.
The Fundaments – The World Economy
Growth in the world’s three largest economies is showing signs of slowing. There is now the very real possibility of the world’s three largest economies simultaneously decelerating. Looking at some of the world’s economic powerhouses, we can see there are a number of issues placing pressure on growth and market sentiment.
United States:
- The US Fed Reserve FOMC minutes reveal the Fed has become less confident about growth (forecast range reduced to 3.0- 3.5%).
- Consumer and business confidence continues to be fragile.
- Unemployment remains stubbornly high and people are beginning to give up looking for work.
- The housing market is pretty much non-existent.
- The effects of the Government stimulus package are disappearing.
China:
- The economic growth rate slowed by more than expected in the Jun quarter, however the economy continues to grow at an above trend pace.
- The Government has imposed restrictions on credit for the construction of property in an attempt to cool an over heating property market.
- There are currency issues between China and the US.
Japan:
- The Bank of Japan (BOJ) believes growth will slow without further government stimulus.
- Japan’s consumer price index (CPI) continues in a deflationary spiral as prices continue to decline.
Europe:
- European Sovereign debt issues remain the biggest issue.
- Fears linger with regards to sovereign debt and its likely impact on the banking sector.
- Question marks remain over Greece, Spain, Ireland, Italy, Portugal and even the Britain.
The Technicals – Dow Jones Industrial Average
Most of the world’s major financial markets continue to weaken. The first week of US earnings has past, so let’s take a look at how the Dow Jones Industrial Average is currently placed.
Monthly Trend: Neutral to Bearish
DJIA Monthly Chart
Analysis:
- A new low was formed in May which took out the previous low set in Feb.
- In June the Index closed below 12month moving average for the first time in twelve months.
Weekly Trend: Bearish
Analysis:
DJIA Weekly Chart
- After a 5-wave uptrend the Dow met resistance at the key Fibonacci retracement level of 61.8%.
- Since then the uptrend has been broken with a lower high set in late June and a lower low set in early July.
- Last week finished on the lows for the week.
Daily Trend: Bearish
DJIA Daily Chart
Analysis:
- The Dow has pulled back over 20% since late April when the index set a high above 11250.
- The Dow is currently perched precariously above the 23.6% Fibonacci retracement level of the Mar09-Apr10 market rally. A failure of the Dow to holding above this level (approx. 10120) will signal the beginning of a new move down.
- The short term turnaround in the Dow that occurred over the last nine days has failed to close above the 200 moving average on 4 separate occasions.
- The final trading day of last week saw the Dow suffer a 260+ point thumping.
Support:
- A break below the key support line of 9700 point could see the Dow move quickly towards the 9000 point area.
The Dow is currently moving in a confirmed down trend on both the daily and weekly charts. Sentiment in the stock market is predominately neutral to bearish. This week we may see a short term bounce in the market after the heavy selling seen on the final day of last week.
Tactically it would be wise to sit on the sidelines in the current financial environment. Any holding should be closely monitored and any stocks showing signs of weakness should be exited at your protective stop.
Ok there we have it, a fundamental and technical assessment of where the US ‘bell weather’ index is currently situated. This is the type of stock market ‘basics’ you should be working to understand as build up your knowledge and skill base.
Developing the ability to analyse the overall environment the stock market is operating in and the sentiment of major market participants will help you immensely in your efforts to achieve long term success and profitability.
Take Action:
- Check out why you should subscribe to my FREE ‘Mastering Profitability’ E-Course and weekly E-newsletter updates.
- Take a few minutes to make an assessment of your local economy and stock market. What opportunities exist? What issues lie ahead?
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