Saturday, February 02, 2008

Weekend Notes on the Market

The bottom is in for now, but what about the top?

With Fed’s unconditional love, the bulls posted the second straight winning week, and are now poised to further extend the rally.
On the weekly charts: For all major indicies, the negative momentum starts to retreat, crystal clear signals of the beginning of an oversold rebound (both RSI and Stochastic), candle formations all bullish, especially for SP500 and DOW (very close to the Morning Star).
On the daily charts: the momentum not only flipped to the positive side but rising, other indicators also favor more upside movement; last Friday’s gains put the market solidly above the top of the past 5-day consolidation range (well, maybe except the QQQQ).

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

1. As I pointed out in my last weekend’s notes, the market would need follow-through days to confirm the bottom and it got a couple of high volumes days the past week, so technically speaking, the bottom is now much certain not only for the short-term, but also for the inter-mediate term.
2. With the Fed has not only pledged to be but also acted like the Wall Street’s bitch, the bulls start to think about all the growth the rate cuts would generate in later part of this year. In other words, with the floor being firmly placed, the market psyche is turning cautiously bullish, which may explain why the bleak Dec job report did not trigger much sell-off on the Friday.
3. It is interesting to see that Russell 2000, which led the market down since Oct’07, is now leading the rebound with force. I noticed before that the small caps are often the first to top and the first to bottom. So its latest movement signals that the market may be near or have reached a bottom.
4. While the QQQQ has been a bit under-performing the market, there are some signs that tech might become the latest beaten down sector what will see some solid rebound (see banks, homebuilders and retailers), but with many disappointing tech ER lately, please curb your enthusiasm.
5. While many evidences lead me to predict that the market will extend the rally for next week or two, the rebound will be most likely a bumpy one because there is a possibility that the economy could deteriorate much worse than market has now priced in, the dismal Dec.’s job and GDP reports, which caught almost every market analyst off guard, highlight the clear and present danger.
6. It is worth to point out that several key world markets are now in a full-blown down trend (examples: Japan and China), and that just won’t sit well the bulls camp.
7. Despite of many near-term bullish signs, let me make the following clear: the market is still in a clear down trend and the bulls will face bears’ stiff defense as they approach many solid resistances.

Will post the weekly trading calls tomorrow.


razor said...

very nice summation, where do you see the top channel of the down trend, my guess is dow 13k-13250. Observation...just as the 50dma crossed below the 200 signaling the downturn, it looks like its begining to curl back up and the stochastics would not be overbought for a long time...

i wish we had more opinions and real time traders here to bounce ideas. Oh and you're wrong about one thing, I'm completely hungover and trashed today...

flyingwabbit said...

thanks for your kind words. cannot believe you had another wild friday night, boy, and I thought I was the only one who people can not tell if I am sober or drunk when I talk:)
I don't use channel much, rather I focus more on key MAs (MA50 and MA200) as well as momentum indicators to assess the dynamics of a trend. Right now I have my eyes on MA50 for the major indices and many stocks.

Anonymous said...

any idea on BX? Looks to me like a good shape.