Ian Woodward's Investing Blog

The Fed Cut and the Market Yawned

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  1.  With its second rate cut in nine days the Federal Reserve continued one of its most aggressive monetary easing campaigns in recent history as it seeks to nip an incipient recession in the bud. This 1.25% cut in nine days is the biggest change since 1990, but the Market yawned.  The Jobs Report this coming Friday is the next big factor to drive the momentum one way or another.  We are also in the height of Earnings Reports season and Google announces tomorrow, so keep an eye out for the reaction to that report.  It is down 20% ahead of the Earnings Report so be careful.
  2. The Fed lowered its short-term interest rate target 0.5 percentage points to 3%, and left the door open to more: the statement accompanying the move said “downside risks to growth remain” and the Fed would “act in a timely manner as needed to address those risks.” Investors expect the Fed to cut the rate to 2.75% in March. 
  3. The stock market rallied but saw its gains erode following a half percentage-point cut in the Federal Reserve’s key interest-rate target, an aggressive follow-up to its move last week to spur the U.S. economy and fend off recession.  Just look at the reaction in the DOW to the announcement where it rose about 210 points and then gave it all back and then finished negative for the day at 12442.83 down -37.47 points for the day. 
  4. Meanwhile, back at the Ranch, the Congress has approved a $157 Billion stimulus package, so we shall see what we shall see on that count.  I thought you would like to see the action in the DOW over the past four days where it formed a Deep Cup scaring the bears to cover their shorts, and then went sideways in a tight Darvas Box type flat base of a handle, waiting for the Fed announcement.  It blew out of the gate on the expected 50 basis point cut at 1.15pm EST, and then the DOW gave it all up in the last half hour.  I tell you this is a treacherous market and you would be well advised to sit this crazy nonsense out until things settle down one way or another. 

I say again, I would not hold your hopes up too high until we see >150 New Highs and that does not seem to be on the cards until we see a major follow through day with aggressive buying by the bulls and rapid quick covering by the Bears who are hungry for more lunch. For your benefit the New Highs for the last few days have been a paltry 35 today and worse yet as low as 15 or less for each of the past seven days.   Meanwhile it is a tight rope walk as to which way this will go in the next few days…thanks to the picture sent me by David Schoon sitting out in sunny China, a supporter of many years gone by. 

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 Tomorrow’s action suggests the DOW must hold at 12,410 for the Bulls to have any continued respite from the tepid rally of the last few days, and the Bears can taste raw meat just waiting to pounce on all sorts of Right Shoulder set-ups off Head and Shoulders patterns.  

Best Regards, Ian.

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