Beginning Of The End?

Is this the beginning of the end of the subprime crisis?

Rumors that a bailout plan for troubled bond insurer AMBAC (ABK) is on the way this week caused the market to rally late last Friday to close up positive from a deep negative territory. Investors see this move as the beginning of a series of bailouts for the financial sector, possibly ending the subprime crisis. Even though this bailout does inject some optimism, the slow down in the US economy and issues with rising inflation are issues which still remains unsolved. This means that earnings growth and outlook continue to be uncertain for most companies, which translates into uncertain outlook for stocks and the stock market. So, what I am saying is, don't expect this single bailout to translate into a sustainable rally.

On the technical front, the daily 30MA continue to be an extremely strong resistance level for the Dow. In fact, last Friday's strong late day surge stopped right below that line as well! We should see a definite break this week as tight sideways market like this rarely last for more than a month. But which direction would the break be? I would think that a break to upside is very likely even though it may not translate into a sustainable rally. A visit to the Jan lows appears to still be in the horizon no matter what the market does this week. The going continues to be tough but the tough gets going. Let's hang on!


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