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Wednesday, June 30, 2004
Good evening friends,
Market Recap
It is official, the Fed decided to raise interest rates for the first time in four years with a ¼ percent increase. This was expected by the market, and it came as no surprise. As I mentioned a few nights ago, this hike was expected by everyone and it was priced into the market already.
Normally when rates rise, stocks fall, but as I had mentioned before, I was taking the contrarian's approach to this rate hike. I thought stocks would rally if rates were to rise. I also said that if there was a ¼ percent raise, the market would most likely not react at all in the initial stages, because this raise was already priced in.
This is exactly what happened today, and the Fed decision was a non-event. There was barely any initial reaction to the Fed decision as stocks barely budged in the first hour after the release of the news. It was not until the last hour of trading that things started to pick up. Smart money closes the market. I mentioned that I thought the real rally would come the following day. I believe the rally starts tomorrow morning. However, keep in mind that it is a long three day weekend, so traders may hesitate to get in the market.
Looking Ahead
At this point I do not think there will be any major retracing in the markets. The Dow should hold this level and hopefully begin to climb back towards 10,500. The NASDAQ should be able to hold above 2,020 and make a nice push towards 2,070. With the interest rate fears out of the way, strong economic numbers, and great earnings reports coming up, this should set the stage for a summer rally.
There was no reaction from the market today with the expected ¼ percent interest rate hike. Now it is time to digest the situation and hit the ground running tomorrow morning. Nothing is a sure thing, but I am leaning toward buying stocks rather than shorting or being in cash at this point.
Shorts
There are still sectors that we can short. Housing and financial stocks are two of those sectors. Also, there are still stocks with very weak charts that will not be able to rally with the bulls. These are the stocks that we will be shorting, but the real money will be made on the long side of the market so do not expect many new shorts. But the ones I do short should be good for some small gains. One of the stocks to keep in mind is Freddie Mac (FRE). Profits just came in with a 52% decline and with interest rates on the rise things could be getting worse. It is certainly one to keep an eye on.
Employment Numbers
The next big number to come out is the employment number on Friday. Combined with the start of earnings season, this new information may give the markets a jolt. Normally, I do not hold stocks into earnings, but I will hold YHOO for sure. I believe their numbers will be excellent, and I am hoping it will be the start of a major run by this internet leader.
The Fed's have made their decision known; now it is time for the market to make its decision.
OTC BB Watch List
- CCLH: I am keeping it here after yesterday's shakeout and comeback.
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