No Doubt Another Volatile Week Ahead...

There is no doubt that this is going to be yet another volatile week!

GDP numbers will be release on Thursday and equity options are expiring this Friday. (see stock market calendar) Both events are certainly going to be the main contributors of volatility this week.

As I mentioned last Thursday, recessionary fears are quickly being overtaken by inflationary fears as the Feds' inappropriate rate cuts have caused inflations to rise out of hand while doing nothing for the stock market... a lose lose situation. Inflationary concerns are further fuelled by last Friday's CPI numbers as it turned out higher than analyst expectations, as I have expected. What I did not expect was the sheer magnitude of the rise in CPI... the STEEPEST rise since Sep 2005 and the HIGHEST core CPI since April! These numbers are defintely the manifestation of the damage done by the past 100 points rate cut by the Feds yielding under the pressure of the market! Year over year headline CPI number now stands at an ugly 4.3%! That's way higher than the Fed's unofficial comfort zone of about 2.5%! Such a number should warn the fed against further rate cuts.

The Dow reacted to the CPI numbers and continued its path downwards on Friday, officially marking the start of the reaction rally pullback. As the Dow theory suggests, if this pullback turns around before it hits the November lows, the Dow could resume its primary bull trend but if it reaches and exceeds the November lows, we could see the Dow laspe into a full scale bear market... the first of its kind since the crash of 2000!


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