Today's Comments (Short Term Outlook)                             Printer friendly

Relief The market was on the verge of a waterfall like decline at yesterday's open as the Dow futures were down as much as 650 points overnight on Monday.  The Fed stepped in about an hour before the market opened and announced an emergency 75 basis point (0.75%) cut in the Fed Funds rate. By the close, the ending 123-point decline was almost a relief to those who were expecting something much worse.  So, the Fed helps the market again, and we have to decide if that's it for the downside. It could be, but as many solid market bottoms do, we could easily get a retest of yesterday's lows.  If that holds, then we'll feel better about buying.  The low in the S&P 500 yesterday was 1274.  Looking at our head and shoulders (H&S) pattern, the neckline was broken to the downside, and that old support should now act as resistance.  What tends to happen in an H&S pattern is that we would see a rally back up to that neckline, usually on lighter volume than the volume during the break below, then the downside would resume.  Whether that means we test and hold 1274 or start another leg lower, I don't know.  We'll just have to see how it plays out.                                     Chart provided courtesy of www.decisionpoint.com  The question will be, is this aggressive move by the Fed, along with Bush's tax rebate plan, going to be enough to hold off a recession?  We can't blame them for trying, but we can also look at it as a sign that the economy may be in worse shape than we were being told.  It took an avalanche in the overseas markets to turn the Fed around.  Just last month they threw us 0.25% cut that disappointed the market.  A month later, and a week before they were due to cut again, they slam a 0.75% cut at us.  Either they were very pressured or something is very wrong.  But maybe these actions will help?  Of course it was cheap money over the last several years that led to this credit crunch so I'm not exactly sure how all of this is going to play out.  It seems as if we are just hitting the instant reply button, but I don't know how it all works.  The Fed is expected to cut another 0.50% next week.  Does this mean inflation under control now?  Is the dollar going to stabilize in spite of the massive cuts?  The futures are deep in the red as I write this, but look for some bargain hunters to step in sometime today to buy any negative - but again, don't get too comfortable with the upside if we see a rally.  It can be taken right out from underneath us again.  The charts will help us find a less risky entry point.  We are looking for signs of a reversal such as a big move back over the neckline on very high volume.  A market that does not sell-off, but rather continues to rally once it becomes overbought.  A test of the lows that holds and reverses up.  We may not pick the exact bottom this way, but it will keep us safe in case things turn nasty again before one of the prior mentioned scenarios is generated. That's all for today.  Thanks for reading.  See you back here tomorrow. Have questions?  Visit our message board for answers.  Would you like to be on our email alert list?  We will send you an email when there is a change to our asset allocation or market outlook.  Your email address will never be given out.  Read our privacy policy.  By signing up you agree to the TSP Talk Terms of Service.  More details below **. Are you bullish or bearish?  Join the Weekly Sentiment Survey. Like what you're reading?  Tell a Friend about us.