Bears out, bulls in?

Unfazed by more negative headlines, bulls mustered a big up week and on the verge of making a higher high since last November, which will produce the first solid technical indicator to confirm Jan’08 lows as the bottom and lay down a foundation for a possible trend-changing rally.

On the weekly charts: for all major indices, the momentum is poised to turn positive for the first time since last November; stochastic shows clear and early signs of oversold rebound; MACD is poised to cross and turn up; MA10 turning up while the short-term MAs remain in confirmed bearish formation; candle formation bullish; overall volumes remain light for the second straight week.

On the daily charts: for all major indices, the positive momentum stalled as they lingering in the overbought conditions; solidly above MA50 and approaching the corresponding Feb/March highs; overall volumes light for recent days; short-term MAs turning up; overall candle formations in recent days bullish;

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

1. It is impressive that the market shrugged off several big negative news this week, including the March employment report, to keep the big gains in the early part of the week intact.
2. The overall volumes during the last 2 weeks’ rally have been light, suggests the lack of full-hearted participation of the big institutions. Given this, the bulls may struggle to keep advancing as they approach the key resistance zone while in overbought conditions.
3. The market has priced in a quick and shallow recession scenario, and fully expected a second-half economy rebound this year. The monthly job loss numbers so far support the “shallow or mild recession” notion. But I think the upcoming earning season may provide a better indicator for the coming months, and we are yet to see if that would be in-line with the current prevailing view.
4. While there is a clear bullish tone in the market and the major indices may overall trend up in coming weeks, as long as the underlying macro-economic conditions remains dire, a strong and straight-up rally from here is not likely.