Tentative again

The market ended relatively flat on Friday, again holding onto Thursday's big gains.  A similar pattern to what we saw on Tuesday and Wednesday of last week.  Now that we are on the eve of a likely Fed rate cut, what do we have in store?

The chart shows that the S&P 500 continues to trade within a 1450 to 1490 range on a closing basis, with intraday swings closer to 1440 and 1500.  I would be surprised if the index maintained that range by close of business on Wednesday of this week.  Something is going to give, but what?

Historically stocks do very well when the Fed starts to cut interest rates, but the short-term reaction is less predictable.  We have looked at the 1998 chart many times the last few months but I wanted to point out again what happened during the correction that year.

The market was hit hard during the summer months and like today, there was a rally that led up to the September 29, 1998 FOMC meeting where investors were looking forward to a rate cut.  The Fed did cut rates 0.25% as expected, but there was a "sell the news" reaction as the S&P had already risen 10% to 12%. The sell-off saw the S&P retest the prior lows, and on October 15, the Fed cut another 0.25% and the market shot up and didn't look back after that. 

the dollar actually does well also, and bonds were mixed.

I was asked why I don't talk about China anymore.  I used to track the daily movement of the Shanghai Composite when we thought we were going to witness the bursting of a bubble.  We saw a 10% correction overnight in February, but it recovered rather quickly.  We got another swoon in late spring and early summer, but again it rebounded.  Now it is close to new highs again, actually doubling (up 100%) since the February correction.  So why was this something worth watching?


           

This index has gone from close to 1000 to over 5400 in under two years.  Amazing!  That's about 400%.  Compare that to the Dow, which has done well itself the last two years, but it was only up about 30%.  How long can this go on?  I don't know, but when things unravel there, we will feel it one way or another here.

           

The TSP Talk Sentiment Survey system is in the market (100% S-fund) this week.

The EbbChart System is in the S-fund today and it appears it will be jumping around quite a bit this week.  Check out the EbbChart page to see where it goes next. 

Trader Fred's TSP Trader System is in the G-fund today after Friday's interfund transfer.  We are waiting patiently for a buy signal from this system as it has been on the sidelines (actually doing well in the F-fund) since July 9.  Read more on the system page.

Divot also has an update for us in his Market Debrief article.

That's all for today.  I am currently 100% F-fund and I am preparing myself for a volatile week and probably some activity in my account .  I know what I hope will happen this week, I know what I think will happen, but that doesn't always translate into what actually happens.  See you tomorrow.

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