Why We Get A Rally Next Week

I think we’re setting up for a much anticipated bounce next week.

First, we’re majorly oversold here. 

We’re down about 10% on the S&P in just the two and a half weeks of 2008 (Jan 2-4, Jan 7-11, Jan 14-18)(S&P 1 Month Chart).  That puts us in a position where any good news can lead to a nice bounce.

Second, we have some catalysts

President Bush will give his State of the Union address on Monday January 28 and the Fed will announce its decision on monetary policy on Wednesday January 30th.  Bush will probably have some things to say about the stimulus package and many are expecting the Fed to cut at least 50 basis points.

Markets are closed on Monday for MLK Day.  So it will be a short week and traders will look ahead to those two big events the following week.

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