This is certainly a good day for bulls. Despite earlier news about Northern Rock and BOE bailout, the market recouped almost all losses towards the end of the day. The volume is still light. Next week will be the focal point of this month. Actually it is not that volatile so far this month but this can be easily changed with next Tuesday's decision. Other than the Fed meeting, it is also worth paying attention to several earning reports from brokers(LEH on TUE; MS on WED; GS, BSC on THUR).

The market is doing really well so far this week. The basic pattern goes like this: one day up, the next day flat, then up again. If this pattern can hold until next Tuesday, it will show that investors are confident that the Fed will have the ability to stabilize the market. Again, the volume is missing from today's action. But on the positive side, we do have some financial names leading the market. Tomorrow will bring most of this week's economic news and it will give more indication to the current health of the US economy. Oil continues to climb higher and is closed above $80 for the first time. T-bonds continues to drop, indicating more money move out(potentially can move into the stock market).

The market is almost flat heading into the close. Most investors are in a wait-and-see mood, waiting for the decision from the Fed next week. Volume continues to be on the light side. The biggest news today is probably oil, which has hit $80 before closed at $79.91. Although it is potentially a inflation concern, for now the market simply ignores it. Next week will bring some true test to the credit market. Other than the much watched Fed meeting, the commercial paper market will have one of the busiest roll-over period and how the credit market will handle it will definitely worth paying attention to. Also, next week will also have the quadruple witching date, so more volatility should be expected.

All three major indexes have a gain of more than 1% heading into the close. If there is anything that is missing, it is again volume. But this is not surprising as both bulls and bears are anxious about next week's rate decision from the Fed. Currently bulls are hoping that the Fed will cut 50bps. However, I won't be surprised at all if we have a 200-point drop day during the next 5 sessions when the market is concerned about less than 50bps cut. Oil closed at fresh record high today(my predication of peak oil price was dead wrong just as my previous 10 predications went). Several reasons contribute the recent oil price hikes: a). Continued drop in commercial oil product inventories(lately crude has also joined the party) b). Robust global demand(reflecting continuous strong global economy) c). Weaker US dollars in front of the Fed rate cut(as can also be seen by strong gold price) d). Worries about more hurricane activities(I'm not too sure about this one but apparently some hedge funds are more like weather forecasters these days) e). Concern over terrorism around the oil producing areas(I guess this one will never go away, at least for the next decade). Overnight, China's CPI number certainly raised inflation fear and prompted the domestic A-share to drop more than 4.5%. The official number now is 6.5% but I believe the real number is much higher than that. As a result, the central bank in China will have no choice but continue to raise interest rates. But on the other hand, with the spread between the US rate and the Chinese rate narrowing, it will add more pressure to the RMB appreciation. It is indeed a dilemma for the policy makers.

After earlier losses, most major index are not back to positive territory. Although there was no follow-up selling after last Friday's big selloff(some people were worrying about another Black Monday), the volume certainly is disappointing. Even for those relatively strong sectors such as investment banks, the volume is lighter than usual. Investors are keen to see how the Fed will react next Tuesday and currently the futures indicate 50% chance of 25bps cut and 50% chance of 50bps cut. Oil continued to rise in front of tomorrow's OPEC meeting(I don't think they will change the current production level) and it did add an increasing uncertainty in the Fed's policy, that is, it will keep inflation at an elevated level. T-bonds continue to rally and now the 10-year yield is close to 4.3%, almost 100bps below the Fed funds rate --- a very rare event, indicating the market is forcing the Fed to cut. Overnight, the Japanese economy shranked much bigger than economists were expected. And this does cast some shadow over possible US recession. But in my view, as long as the Fed can act quickly and decisively, the recession can still be avoided.