Tuesday, January 22, 2008

Force Fed

I finally figured out what Big Ben was saying on January 10th when he said the Fed was prepared for further substantive action in lowering rates.

He meant, "Just as soon as the world goes into a panic plunge, we are there for you." Not a day later; unless you count US holidays, then not 2 days later; but not much later in either case; because the Fed is on the job.

Pretty amazing when you think about it. Fed cuts have a delayed effect; the Fed admitted they saw the problem and they were prepared to respond; they then sat on Fed hands while the market eroded further (and further) and they jump to their feet and respond only after the world lost any and every bid.

I wanted to buy the open, at least for a quick trade, and last night my only hope was the Fed wouldn't come in before the open and muck up the ensuing panic-open. The Fed took the trade away (at least for me, the trade still worked, but I got cold feet not knowing if the Fed action would mean not opening at the lows).

We did catch a bid and a rather decent one at that. We may or may not need some amount of re-test and so I'm forced to be careful in the interim, but we have some extreme positives now from a trading perspective. First, we saw real fear. The entire world this time (good time for all). 2nd, we have dramatic rate cuts and more to come. The Fed's delivery left a little to be desired, but the bottom line is the bottom line and we trade in the present. Rates are a major positive right now.

If we can close above 1805 or so on the NDX, it is a victory for the market and if not, then we have further work before any clear healing has begun. The NDX was the last index to break the August lows and if it closes above that level today, you will have never broken that key index; a clear positive.

Several key NDX stocks never really broke down/or at least they held their long-term 200-day moving averages. MSFT, AAPL, GOOG, RIMM to name a few (AAPL reports tonight, FYI).

I'm buying some tech - I bot MSFT heavy today (ave. 31.95) and KLAC lightly (ave. 42.86). I may or may not hold MSFT into the eps number due after the market on Wednesday; depending on action.

For now, Fed fund futures are pricing in another 50bp for the January 30th FOMC meeting/announcement as probable; in addition to today's emergency hack(job) of 75bp. If the market rallies strongly between now and then , I assume we'll see only 25, but otherwise 50 is likely.

Oversold Financials and the Russell 2000 have reversed up on the day, which is important, but in and of itself is not that indicative of any bottom. Plenty of shorts have reason to take profits today, following the clear signs of panic. It does strongly suggest that we won't be crashing or anything like that today, however.

Today is clearly not the end of the world then, but it is not necessarily the beginning of an intermediate-term rally either. I think it is a little more than likely, to be clear, but my limbs are tightly held at the same time. Taking this one hour at a time.

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