Today's Comments (Short Term Outlook)                             Printer friendly

25 basis point rate cut - now what? Stocks curiously rallied strongly early yesterday before the FOMC announced the 25 basis point rate cut and policy statement announcement at 2:15 PM ET.  After an initial knee-jerk reaction even higher, stocks sold off, moving into negative territory by the close.      The Fed had given some indication that there may not be a need for further cuts, and investors seemed concerned.  As I said above, the 120+ point gain prior to the announcement was rather confusing considering what was at stake.  I am personally going to have to do some more research over the next few days to come up with a plan of attack for the next several weeks and months.  On one hand I like that the market seemed to be able to show some resilience in spite of the economic slow down, sinking consumer confidence, a slowdown in the jobs market, and a housing market that shows little signs of life.  On the other hand, resistance is directly overhead and the recent rally, which is now about six-weeks old, could be getting tired.  One positive note, the government announced that GDP was actually up 0.6% in the 1st quarter, which technically tells us we may have avoided a recession.   The long-term head and shoulders pattern we talked about for quite some time, seems to have completed and nearly met the downside target.  When a H&S pattern breaks below the neckline, the distance between the neckline and the top of the head is a good indication of how deep the pullback / correction will be.  The S&P 500 didn't quite make it the distance, but it was close enough.                        Charts provided courtesy of www.decisionpoint.com - with analysis by TSP Talk The next action you'd expect within a H&S pattern is a rally back up to the neckline; usually on lower volume, before backing off again.  We saw that into late January.  That about completes the pattern even though we then encountered a lower low, and another rally back to the neckline - depending on where you draw your neckline.  That big reversal day in August of 2007 made things a little less clear cut.  The index is now back up to the neckline and at the 200-day moving average.  If this H&S pattern is still in play, this would be where we'd see another pullback. Yesterday's reversal gave us a technical outside day - a higher high and lower low compared to Tuesday's trading range - and closing near the low of the day is not a great sign for the direction of the next move.                          Charts provided courtesy of www.decisionpoint.com - with analysis by TSP Talk We are entering the weaker six-month period for stocks today.  The rule of, "sell in May and go away" is a good strategy if you used it every year for many years, but it obviously does not work every year.  The 6-month period between November and April is supposed to be the stronger 6-months of the year and that didn't work out so well for us.  Whether stocks will pullback in May because of the recent 6-week rally, or if they will continue to rally because of the six-month correction, I don't know.  With the Fed out of the way and having possibly seen the last rate cut, I really want to take a harder look before making a call.  I do like the idea that the Fed may stop cutting rates so we can get a chance to see if the 325 basis point cuts that began in September, are going to have an affect.  They seem to have a history of going too far in both directions, cutting and raising.  That's all for today.  Thanks for reading!  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. ------------------------------------------------------------------------------------------------------------------- ** By joining our email alert list you will receive an email each time we initiate a transfer or change our market outlook.  You may also receive an email each Monday morning reminding you that our comments are updated daily.  We will always send out these emails prior to making the transfer myself but we can not guarantee you will receive it in time to make a transferide to follow our transfers in your own account, you do so at your own risk.  There is always a possibility for a loss in your account.  These transfers could come very often and you may have to act quickly to make the deadline.  Please consider your investment strategy before taking any advice or making any transactions.  By reading the contents of TSP Talk.com and accepting the email alerts, you must agree to the Terms of Service.  Thank you. TSP Talk