Today's Comments (Short Term Outlook)                             Printer friendly

A pop and a drop The Fed cut the Fed Funds rate by 0.50% yesterday sending stocks straight up - then straight down.  I don't know whether it was a "sell the news" reaction, a reaction to the Fitch Ratings downgrading bond insurer FGIC, or just a head and shoulders pattern running it's course, but it sure has everyone's attention. The consensus was that a 0.25% cut would cause a sell-off, but that a 0.50% would help the market.  It did, but it was short-lived.  The head and shoulders pattern ran into the neckline on continued lower volume, then reversed, just like it "should". The market may not be easy to predict, but when technical patterns follow their script, it is fun to watch.  Not so much because we may have made money or avoided losses, although that is good, but because there is comfort in knowing that there is a rhyme and reason for doing the technical analysis dance.  Some don't believe in technical analysis, but I think it is more predictable than fundamental analysis.  The fundamentals do work, but the market doesn't seem to move in harmony with them. The S&P 500 did make it up to the neckline (about 1386) before reversing back down.  Support (the neckline) once broken, acts as resistance.  The rally off of the recent low was on declining volume compared to the rising volume on the way down.  This is typical head and shoulders  pattern behavior and the longer the market follows predictable patterns, the easier it will be for us to take advantage of the action.                                 Chart provided courtesy of www.decisionpoint.com  As I write this on Wednesday night, the S&P and Nasdaq futures are down double digits, but surprisingly Japan is rallying.  After the way U.S. stocks sold off yesterday I thought we'd see an overseas hangover, but Japan didn't want to play.  The Nikkei Index is actually down 26% from the highs this past summer so maybe it is due for some relief.  Japan does make up almost a quarter of our I fund so we should be keeping an eye out for a possible reversal.  With the Fed aggressively cutting rates, the dollar looks like it wants to start another leg down so the I-fund is piquing my interest.  I wouldn't jump in just yet, but it may be worth using the I-fund when you are ready to buy stocks again.                              Chart provided courtesy of www.decisionpoint.com  Well, that's all for today.  It should be interesting to see if stocks can rebound from yesterday's reversal.  I doubt it.  I think we could be getting primed for at least a retest of the recent lows, but the closer we get, the more I am interested in getting back in stocks.  See you 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.