The markets closed the week on a big rally with the major indexes recording an accumulation day but were still negative for the week. The markets took heart after Fed Chairman Bernanke glossed over dismal economic news, which downgraded second quarter growth to 1.6% from a previous estimate of 2.4%, and said that "Should further action prove necessary, policy options are available". The downward revision to GDP, and continuing high unemployment, makes it  clear that further action is necessary, so why is the Fed so reluctant to undertake those policy actions now?

The NASDAQ chart shows that Wednesday was a reversal day in that it closed higher after setting a local intraday low. O'Neil (CAN SLIM) followers consider this as a possible sign of a market bottom and look for a "follow through" day on the fourth through twelfth day after the reversal. As Wednesday counts as the first day, that means a follow through day could occur as early as Monday.



While a short term bounce in the markets is possible, I believe the underlying trend remains downwards, so beware that a follow through day could be a "bull trap". Consumer spending is the key to the recovery. When the Consumer Metrics Institute's "Contraction Watch" indicator starts to trend upwards then we can have some measure of faith that a recovery is just a few weeks away. Unfortunately, the latest measures indicate the "Daily Growth Index has reached a year-over-year contraction rate of 5%, and it is rapidly closing the gap on the worst contraction rate observed during the 2008 Great Recession". In other words, the economy is heading towards another 2008 like recession.

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