Weekend notes on the market -- Feb 23 ,2008

Impasse, but for how much longer?

A wild week on the Wall Street, featuring 4 consecutive “gap and crap” that water-tortured both bulls and bears, had an crazy ending as the last minute bond insurer bail-out rumor fueled a bullish comeback from the edge of collapse on the Friday. The rally put both DOW and SP500 in the winning column and NASAQ in the losing column for the week, though none of which came in on significant margins.
On the weekly charts: the high negative momentum either remained stalled (NASDAQ) or diminished somewhat (DOW and SP500) for the 4th straight week; for all major indices, the stochastic poised to turn down again; the declining pattern in both weekly price range AND the overall volumes now extended to 5 straight week; other indicators neutral for the near future.
On the daily charts: the positive momentum either stalled (DOW and SP500) or waning (NASDAQ); while winning and losing sessions alternated, the overall moving direction has a down bias within an overall bear-flag like formation; the widely watched triangle formation was solidly broken to the downside on the Friday, but only to come back with a hammer candle for all major indices; other indicators are neutral for the near future.

Thoughts and observations about the current market conditions and near-term outlook:

1. The treacherous macroeconomic headlines forayed into a new theme this week as the latest CPI data raised real fear of the stagflation for the first time in years. It becomes clear that the inflation can no longer be overlooked and this may be just the beginning. Such new negative headline, along with the existing and continuing deteriorating ones (see “One in ten home loan is under water”) will continue suppress any rally to say the least.
2. Driven by the excessive liquidity from many center banks, the commodity and related sectors enjoyed a break-out week. Such surge could further enhance the inflation fears.
3. Friday’s last minute furious rally made one thing clear: there were and will be plenty of ready and able buyers if major indices approach their mid-Jan AND early-Feb lows.
4. The major players continue to sit tight for the 4th week in a roll. Until they are committed to either side (large move+heavy volume), the market is likely to remain range-bound for the near future.

Will post weekly calls on Sunday.