A Critical Stock Market Week...

Last week was somewhat of a positive week with the Dow gaining 1.34% and the Nasdaq Composite gaining 0.83%. That was what I called last week as "Pulling Up A Loose Sock". A loose sock starts to drop when you try to do the real work of walking. This week, we will see the real work of some heavy weight economic releases like the CPI and PPI (please see Economic Calendar ). These numbers will either tell us that the economy is not doing as bad as we thought it is last week and give some support to the little pullup we saw last week or that they will support the view that the economy is doing badly and therefore Greenspan's recession prediction might just come true, ending the pullup and allowing the sock to drop again.

Looking at the weekly charts for both the Dow and the Nasdaq composite, we do see some reason for optimism. Both the Dow and the Nasdaq composite has rebounded from their weekly 30 MA support and has also retreated from their mid term overbought level for the first time since the July rally begun. This is a pretty good mid term reversal setup. Being a mid term setup, we might not see an immediate reaction to upside but probably a few days up and down before finally gaining strongly to upside.

Again, we shall let the market do the talking this week. My hunches remain bearish for now.



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