The Feds strikes back, again!

I am going to be brief for this weekend’s notes on the market. Instead of going through detailed TA examinations of the major indices, I am going to just present some distilled observations and thoughts on the current market conditions and near-term outlooks:

1. Despite of the oversold conditions on all major time frame, the weekly momentum/candle/volume patterns still favor further downside in coming days. VIX chart also favors such scenarios. There are, however, some developing bullish divergences on the daily/60 min charts.

2. The losing streak is now at 6 straight weeks, the longest since September 2002. As the overall volumes shoot up to multi-month high, the fear is growing, but it is far from panic.

3. Despite of having all the winds behind them, bears are having troubles to finish the bulls off. On the contrary, bulls have been buying in their orderly retreat as if they are convinced that the bottom is very near. If the bears continue to show such lack of killer instinct by failing to push the major indices breaking down through the 2-week trading range (by close), they will be gored by the bulls very soon.

4. I have been waiting for a big downside move to initiate some long SW positions, however, I am now start to consider the possibility that if the major indices do break down the 2-week consolidation range, they could incur another quick 5-10% loss in a week or two time frame. In such scenario, building up SW long positions at the end of the first breaking-down day may not be such a good idea.

5. On the same topic, all major European stock markets broke through their week and half long consolidation range on the Friday, and I will keep a keen eye on them to see if the size of the second leg down is comparable to the first leg.

6. The Q2 ER season kicks into high gear next week, bulls have high hopes, especially for the tech sector, that it will provide positive catalyst to at least stop the ongoing slide. I have serious doubts on such notion, considering recent movement in MSFT, CSCO, INTC, NVDA.

7. This Friday’s takeover of IndyMac by the Fed could mark the beginning of a string of high profile bank failures in coming weeks. This, together with dire distresses in Freddy and Fanny, makes the hill much steeper for bulls to climb.

As I am finishing this, the news of the Fed rescue of Fannie and Freddie just came out, and the indices futures point to a big jump tomorrow. I am pretty sure that bulls are hoping that is will be a re-run of the March counter trend rally that started with the BSC bailout and lasted over 2 months, we will see how things play out this time around.