Weekend Notes on the Market

No rally, no bottom?

Last Tuesday’s shocking ISM non-manufacture index utterly destroyed the nascent rally, and the emboldened bears promptly went on attacking, sending the all major indices to a weekly loss of 4% or more, and along the way, casting the doubts about the Jan’08 bottom.
On the weekly charts: for all major indices, the most evident and ominous signal is the big bearish candles whose bodies engulfed those of the week before, thus largely negating the previous bullish near Morning Star candle formations; negative momentum increased a bit, while the signals for oversold rebound are still there; bearish moving averages bow-tie formation in full swing; the sizable weekly decline came on volumes that were lighter than those of the previous weeks.
On the daily charts: for all major indices, the momentum is poised to turn negative with most indicators favor more near-term downside move; however, presence of buyers are evident in the last 2 sessions,

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

1. The macroeconomic environment is increasingly treacherous. With its impact spreading to many other fields, the sub-prime mortgage mess itself seems far from over. These factors cast long shadow on the Wall Street, and will cap any rally in coming weeks.
2. The US$ may be at the turning point, suggesting other major economy may be forced to cut rates. Although the increased liquidity may buoyant the stock markets in the near future, its detrimental and long-term impact on inflation may ultimately unravel the market.
3. The market was trying to test the Jan’08 low, and so far the test seems successful (check QQQQ and IWM charts). However, the overall light volumes this week suggest that the major players did not participate much either way, making it premature to ascertain either the Jan’08 bottom has been successfully tested or the bottom-ensuring rally is done.
4. The market is now at a crucial point as the Jan’08 bottom is being threatened, while the technical pictures are far from one-sided bearishness, the non-stopping and mostly negative economic headlines would help bears more than bulls in the days to come.

Will post weekly calls on Sunday.