Rumor has it a 'Bad Bank' will be proposed by Treasury early next week as solution to so-called "toxic" (read: worthless) debt dragging down the financial system. After-market futures are reacting quite positively.
So, yesterday's fear might prove unwarranted, then. A final bout of weakness completing this month's decline could be off the table
Yesterday's notable 5-minute RSI dive to unexpected sell-side depths was basis for fearing additional weakness prior to melt-up. Yet should the market immediately shoot higher on the basis of tonight's rumor and effectively kill the possibility of last week's low being imminently retested, the weakness I thought possible might be merely delayed rather than entirely canceled. In other words, the message of yesterday afternoon's weakness following an otherwise promising start to the week's trading might be signaling an alternate way in which the market's pending melt-up might be delayed.
As you can see, the markup above proposes the possibility sideways trading of the past few months might extend for some weeks to come. It also suggests the first month of 2009 might finish with a gain. We will know for sure in just three days.
Tonight's rumor — bogus as far as being a "solution" to a bankrupt financial system — could very well provide a spark and light a fire under positively poised technical measures that currently find themselves at critical inflection points.
Should a screaming rally unfold over the next few days, it will be interesting to see the degree to which further, future gains are projected by various technical confimations ... much as was the case as the market peaked early this month. I am rather expecting a repeat performance.
Likewise, should a pronounced buy-side imbalance be displayed, look out for either a rapid return to present levels at the low end of the market's trading range over the past few months ... or a prolonged journey to nowhere possibly lasting several weeks.
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