Yesterday, the market had a big "U" turn. It failed to break through 2700. The bull can not break up 2810 either. It is kind of balance btw bull and bear. But most sentiment numbers are still near top, meaning market is still too bull to go further. Before FED meeting, I think market will keep this balance and play the "waiting" game. If Fed cut rate again, Market will have a big rally. If not, market may have a big pull back. Either direction will move big. The correction in past few days are not enough to refill the bull for the year end rally.
Big banks such as Citi bank, Bank of America and Wachovia, all encountered significant earning decline due to expose to subprime and related derivatives (CDOs), Yesterday, Merrill Lynch has 7 billion wrote off (lose) in asset due to investment in subprime mortgage and CDOs. It has more than 20 billion investment in those areas. ( Finally someone is brave enough to face the music.) Is this the tip of iceberg ? We will see.
Semi Index SOX broke the neckline around 470 which is not good sign considering Q3 and Q4 traditionally are the strongest period for semiconductor industry.
Oil near all time high, and head to winter time the demand will start to decline from summer peak. The recent new highs is driving by regional tension, so call "war premium" instead of demand.
USO has three distribution days in past 6 trading days. It is forming the top. I think the crude oil at least has $10 down side potential before it settle.
Oil service index OIH is continuously forming the head and shoulder pattern start from late Sep.. It will head to $175.
Both sectors will generate enough impact for base metal, Sun power, Tanker ship, Dry buck sectors. Those are main driving force in recent big rally.
GOLD is also near all time high. Unless Fed cut rate again, it is also due for a pull back.
QQQQ near multiple year new high, Tech bull already ran their course.
So I did not see enough ammunition to drive the rally.
Market needs a pull back to attract new money.
The correction target should be: 6% to 7% from the top. After that, market will has much better position to run again. Dow 13160-13200 (200MA) may close to the bottom of this pull back.
Patient is the key to win in this game.
