Sideways Before Fed Release...

FUNDAMENTAL ANALYSIS
Market closed largely sideways today ahead of Wednesday's Fed release. Obviously, tomorrow's chain store sales and consumer confidence index are not expected to shake the market very much (see economic calendar). Investors are expecting a final rate cut of about 25 basis points from the Fed this time round. Why final? Any further rate cuts below the 2% mark is going to do nothing but set up the economy for yet another housing bubble down the road. That was the mistake Greenspan made that all of us are paying for now. Holding the fed fund rate at about 2% is enough stimulus for the economy to stage a recovery using our present (albeit primitive) economic model. For those of you still thinking that the market is going sideways and not recovering, do you know that the Dow gained 5.36% this month? There is obviously much bullish undercurrent already reflected in the data and it is now up to investors to catch up on it.

TECHNICAL ANALYSIS
The Dow closed sideways today as expected. In fact, with the Dow in short term overbought position, it takes a miracle to see a break above the 13000 mark. I would suspect that the market is going to interpret the economic data over the next few days negatively, bring the Dow back down into short term oversold condition before a real attempt at the 13000 level can be made. In fact, we saw the same pattern when the Dow was attempting to break the 12750 level resistance level. It took a dive on 11 April, bringing the Dow down into short term oversold before it mustered enough energy to break the resistance level. Another bullish indication to add today, the VIX is back down to where it was before the correction started, which indicates that the panic is over and some steady growth may be expected ahead.

So, let's recap my signs of the bottom and add the new item to it:

1. Recovering ISM index

2. Gold getting beaten like dogs

3. Consumer Sentiment index collasped (its always grimmest before dawn)

4. Fed bailout of BSC is demostration of their resolve not to allow the financial system to sink.

5. Existing home sales rising suggests possible start of the bottom in housing market.

6. Extremely steep bond yield curve suggests that smart money needs to move back into value stocks soon. (which is already rising as money moved back to equities from bonds)

7. GDP has not gone negative despite widespread speculation on an academic recession.

8. Capitulation in the job market with an 80,000 loss in March.

9. Biggest jump upwards in the Empire State Index in 5 years.

10. Inflation coming in inline with expectations.

11. Capitulation in the housing development market signalled by a 17 years low in housing start number.

12. Capitulation in the housing sales market as signalled by a multi-year low new home sales number.

13. Jobless claims decreasing, signalling an economic pickup.

14. US dollar demostrating clear signs of strength.

15. The VIX getting below 20 once again.