Overly convenient reason?

The Dow Jones’ significant sell-down last night might give bearish traders a convenient reason to sell down their stocks today. The big question is, is the reason too convenient? The reasonable trader would know that a convenient reason might not always be a good reason to take action.
An Unemployment inspired sell-down
The good news is, the sell-down in the Dow last night might be an “employment reports” inspired event. Critical employment reports will be released in the US in the next few days which includes the ADP as well as the Labor Department’s employment report. The market is generally expecting the August unemployment rate to edge up slightly from the previous month’s 9.4% to 9.5%.
Dow Jones yet to breach bearish technical indicators
Despite the 1.96% sell-off in the Dow, the Dow has yet to trigger any important bearish technical indicators. Most importantly, the critical 30-day MAV line for the Dow has yet to be breached. This would indicate that the sell-off could possibly be a 1-2 day head fake to scare retailers away. It would be more prudent to wait for important bearish indicators to be triggered before making any overly hasty bearish decisions. For the next few days, our FBM-KLCI will closely track the bullish or bearish movements of the US Dow Jones.

No Flight to safety yet :
Generally, a bearish wave would be accompanied by a flight from risky assets to safer assets like US Government securities. We are not seeing that yet. The 2-year yield on US Government Securities has yet to stage a major break-down as it is actually still encased in a triangular convergence pattern. The Proshares Ultrashort Lehman 7-10 yr Treasury Index has also yet to break down from its uptrend line, indicating that there is no clear bearish sign of a flight to safety yet.

Strategy : Wait out the bearish wave to gauge impact on highly correlated FBM-KLCI
It is uncertain where the markets are heading at this point. As such, we will not make any changes to our bullish view yet until we see a concrete bearish sign in the US markets which will have a huge impact on our local highly correlated

FBM-KLCI market. It is more prudent to wait till the unemployment-data wave passes before making any concrete calls on
the market.