Saturday, January 12, 2008

Weekend notes on the market -- Jan 12 ,2008

Hesitating bears vs. cornered bulls, who will blink first?

Bulls endured another losing week while bears got no satisfactions as the Aug'07 lows for all major indices still stand firm.
On the weekly charts, volumes for major indices spiked to 2 month high, but the bearish candle bodies are substantially smaller than those of the prior week with considerable down shadows, indicating bulls' rising resistance. Moving averages formation are in the early stage of trend reversal, while all technical indicators point to more downside movement.
On the daily charts, bulls were able to not only keep the Aug'07 lows intact, but also stall the downside momentum. While the moving averages now in solid down trend formation, stochastic show clear signs of oversold rebound.

Some thoughts on the market direction for the coming weeks:
1. At this stage, it appears that subprime related bad news may not be enough to push the major indices down below their Aug'07 lows.
2. With the determined support from FED, bank/finance sector may stage a rally into FOMC meeting, which in turn, should help bulls. Check out this excellent post on the banking sector.
3. With FED impact diminishing (just look at this week's reaction to big Ben's rate cut pledge), I think the upcoming Q1 report season will decide the market direction for the next 2-3 months. The market obviously has already discount the weak Q1 report season, however, if the outlook for the come Qs are overall lower than expected, the market will break the Aug. 07 lows and possibly extend the sliding all the way to the summer if not further. On the other hand, if Q1 report season turn out to be better than expected, the major indices will rally, but I doubt they will be able to resume the uptrend by at least reclaiming their MA50.
4. I have a feeling that burned badly by FED/bulls a couples of times last year, bears are actually very disciplined so far this year, I wonder if they are waiting for FOMC rate cut to be over or clearer signals from the Q1 report season before showing their claws.

Interested in analysis on some stocks? Check out the "Trading Calls for this week".

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