Is the rally over?

After several days’ futile low volumes attempt, bulls’ hope to extend the rally by clearing the key resistance zones got squashed on the Friday when the perennial beating-estimates-by-a-penny global conglomerate GE missed ER estimates AND lowered outlook. The steep sell-off on the Friday sealed a losing week as the major indices gave back two thirds or more of the gains from the week before.

On the weekly charts: all major indices posted a dark-cloud cover candle formation; the momentum either turned positive (SP500 and DOW) or poised to flip to the positive side (NASDAQ); MACD is poised to cross up and turning up; MA10s flatten while the short-term MAs remain in confirmed bearish formation; overall volumes remain light for the third straight week.

On the daily charts: for all major indices, the 3-week running positive momentum dissipated and on the verge of turning negative; stochastic indicative an in-progress over-bought pullback while RSI(2) suggesting short-term oversold; broke and closed below MA50s; candle formation bearish with clear signs of the strong resistance zone; overall volumes remained light for recent days;

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

1. Overall, the big boys have been sitting tight ever since the Mid-March’s huge rally off the bottom. Without their active participation, the market is likely to be range-bound between the 2008 high and low. However, this may change starting next week as the ERs flood the Street.
2. The huge sell-off (over 366 million shares) of GE on the Friday suggests that at the current level, the major market participants have NOT fully priced in weak outlook for the coming Qs. GE’s warning, along with earlier warnings from FedEx and UPS, does not bode well to say the least, for the Q1 ER season which kicks in full gear next week.
3. Judging from the overall market volumes and VIX of the Friday, fear is mild at most despite of the ominous action in GE trading.
4. Technically, bulls are at a critical point where they can still resume the rally, but they must do it very soon because another sizable decline from the current levels would put the 2008 bottom in jeopardy.
5. The market will be driven by the ERs/inflation reports next week, given what we have seen from GE/FedEX/UPS and the dismal macro-economic conditions, I feel that downside possibility outweighs the upside one.
6. I might consider aggressively long ONLY IF the major indices spike towards the 2008 bottom on modest volumes.

Position Update: I closed all my positions by Friday. The loss on FSLR (cover the remaining half near 266) and SPWR basically offset all the gains from JASO (shorted at 23.88 and covered at 21.22) ,WLT (shorted at 67.8, covered at 65.11), and other profitable flipping of BIDU, FSLR, and I have nothing to show for the last two weeks. The lesson? When you short momo high flyers like FSLR based primarily on extended and deep overbought signals, the timing has to be perfect (I was wrong by one day) or you won’t see a dime before the migraine takes over.