Today's Comments (Short Term Outlook)                             Printer friendly

Passing grade... so far Stocks soared yesterday after the Fed said it was putting another $200 billion of liquidity into the markets "through an arrangement that will lend Treasuries to primary dealers in exchange for mortgage-related paper."  The result was huge rally in stocks, but we've seen this before. On Monday, the Fed funds futures were indicating a 100% chance of a 0.75% rate cut next Tuesday.  After this liquidity injection, that number dropped to a 76% chance.  So now there is a little bit more uncertainty going into the FOMC meeting.  The fact that the January low has held, and thanks to the Fed, we had a higher volume reversal, is a good sign for the short-term.  But I am still not sure we saw the panic bottom we were looking for.  We have seen these rallies before (points A and B).                                  Chart provided courtesy of www.decisionpoint.com      Of course any time you have a double bottom it is easy to be bearish and say it won't hold.  Two weeks ago many pundits were quite confident that the market had bottomed and we had the "all's clear sign".  But there was a big change in sentiment as we approached those lows again, and the bad new continued to flow.  Buying at the bottom is one of the most difficult things to do, both literally (since we don't know where the bottom is), and emotionally because things always look their worst at the bottom. So this big rally throws us a little curve.  Do we swing away and risk being fooled by it, or do we take this pitch and wait for an easier one?  Some say it's a sucker rally, while others say we've had a successful test and the bottom is in.  It's a tough call.  If I separate myself from where my money is right now I have to say that, except for the volume, we can't discount that it does look like a textbook retest.  On the other hand, we don't know how the market will react to the next bout of bad news, which is inevitable considering the economic / financial situation.  That's the next pitch. I have been looking for a rebound so I bought into the stock funds for Monday morning (IFT on Friday) looking for a relief rally and I was greeted by that 2% sell-off.  Yesterday's gains healed the wounds but it is tough to forget.  For that reason I will look to exit the stock funds again if the S&P 500 can move toward 1360 or the NYSE becomes overbought.  Then I will let the Fed do their thing next week with me on the sidelines - hopefully protecting some gains.  If instead the market heads straight down from here, I will have a more difficult decision. The bond market sold-off on the Fed liquidity action putting the AGG back down near the support line.                                 Chart provided courtesy of www.decisionpoint.com These pullbacks have been good buying opportunities for the F-fund but the problem here is that the more times it knocks on the support door, eventually support is going to give way.  Using the F-fund over G as a safe haven will work until the AGG breaks down.  So, I like bonds because of the chart, but the Fed is eventually going to feel the heat of inflationary pressures and bonds may not be the place to be.  As soon as the economy shows any signs of life, bonds will drop as the Fed will start raising rates again - quickly. That's all for today.  Good luck, and be careful.  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.