Weekend Notes on the Market

Bulls blinked, bears tortured, now what?

Heavy losses across the board on rising volumes extended the losing streak for all major indicies to 4 weeks. A nascent oversold rebound on Monday was utterly destroyed by the disappointing Q report from Intel. The implication of disappointing earnings/outlooks from key companies, as I pointed out in last week’s "Weekend Notes on the Market", made bulls feeling like they were grabbing a straw in a raging river, and many blinked. All major indices decisively broke the last line of the bulls’ defense – the Aug’07 lows, and therefore solidly confirmed the reversal of the long up trend.
On the weekly charts, heavy and rising volumes for all major indices came along with bearish candles with long bodies; bearish moving average bow tie formation is presented in all indices; negative momentum are rising; for the first time since last August, all major indices entered oversold territories as indicated by both Stochastic and RSI.
On the daily charts, it is bearish all around with no solid signs of bottoms, and all major indices in deeply oversold conditions.
Some thoughts about the current market conditions:
1.It is pretty clear by now that the 2008 decline is different from those occurred in Aug and Nov 2007 because it has changed long-running up trend. Right now, the Russell2000 leads the decent into the bear market territory with a decline of over 20%, while other major indices are only a few % shy of the 20% marker.
2.It is worth noting that almost everyday this past week, the bulls attempted to rally in the early going, which gave bears constant nerve racking. This evident buy-at-bottom mentality probably explained why the fear (as measured by VIX) stayed low until last Thursday.
3.All major indices are in deeply oversold conditions on both weekly and daily charts, last time such event occurred was in Aug’07, and we all knew what happened.
4.A powerful over-sold rebound could occur anytime (think FED FOMC, think Bush too), in fact, it should’ve occurred last week, but it did not! Selling begets more selling, aggressively long just because of the market is oversold could ruin your account in a hurry.
5.With some key tech names reporting next week (AAPL, Ebay, MSFT, TXN, MOT, JNPR, BRCM), tech sector will dictate the market direction for the coming week. One good report will NOT save the market (see IBM), one bad report will embolden bears (see INTC), and if most are bad, I think we will see a full-fledging bear market all the way to this Fall, if not longer.

Will post my weekly trading calls on Monday, Jan. 21.