After the 359-point rally of the Dow following the Fed's announcement two days ago, a few forces appear to be in a deadly battle for the foreseeable destiny of the stock market. Prices closed convincingly higher than the 50-day moving average on Tuesday, which is highly significant, especially for longer-term traders. Prices have also remained above the 50-day moving average since then. This is quite bullish!On the other hand, prices have shown no follow-through to move higher over the past two succeeding days. Today's pattern looks like radio static, and is nearly impossible to trade with any consistent success. We may also see a new round of hedge fund redemptions within the next few weeks, as investors try to cash out. We have yet to see a genuine sense of capitulation in the stock markets, despite all the bloodshed. There still remains an amazingly resilient and optimistic set of investors that haven't seen the need to "get liquid" and move to cash yet. Additionally, bond traders are seeming to predict a depression, and these guys have one of the most accurate track records in a historical sense. This is quite bearish!
Thus, we see a classic bull/bear battle playing out in the stock market index futures. This typically results in a consolidation pattern. Add to that the fact that volume is weak during the Christmas Holiday season, and we could see some very interesting patterns over the several days, probably lasting until the new year, when volume levels, along with many traders, will return to the markets.
