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Tuesday, May 03, 2005
Market Recap
It was a wild ride on Wall Street today as we expected it would be after the Fed decision on interest rates was announced. They raised rates by .25, as everyone had expected. After the news was released, the markets became very volatile, fluctuating up and down repeatedly and in the last 5 minutes of trading, the DOW climbed 50 points as BSNBC reported that the Fed inadvertently left out one line of their statement. The statement they left out was, “long term inflation expectations remain well contained.” How could they leave this important sentence out of their statement and then, less then two hours later, notice it was missing and managed to release it two minutes before the closing bell? Just when I thought that I had seen it all, we get this stunt. In any case, the market closed up for the third day in a row with the DOW up 5 points, the NASDAQ up 4 points and the S&P was down 1 point.
The Fed Forgot a Sentence?
The Fed speaks but did anyone listen? This is becoming more of a broken record than an actual statement on the state of the economy. Once again, we got the expected rate increase, and once again the Fed used essentially the same statements and tone.
The quarter point rise in rates had long been priced into the markets. There was essentially no way that they were not going to raise it a quarter point and almost no threat of anything larger than a quarter point. So this is really non-news. What the market was listening for was what they had to say about the economy and, of course, we find out later that they left out a sentence. Notice how the DOW gained 50 points in the last 3 minutes of trading? Only then, after Wall Street got wind of the news, did we hear it on BSNBC. It was nice of them to tell us after a 50 point move. The small investor is left out in the dark again until it is too late to do anything about it. BSNBC let us know literally as the closing bell was ringing. Like I always say, the deck is stacked against the small investor and today was just more proof of it.
Once again, we got the term "measured pace" in the statement, as I discussed last night. I did not think that they would do away with this term. Fortunately, the Fed has been doing what they have said. This policy does lend some stability to the markets. If they decided not to raise rates, the fear would be that the economy had come to a screeching halt. If the Fed were to raise rates too quickly, interest rate fears would spread panic, so perhaps the "measured pace" statement is actually the best approach.
Unfortunately, I do not think this really resolves a whole lot concerning the markets. We all knew the rate increase was coming and we got exactly what we had been expecting. We did not get the change in policy that we were hoping for and no further guidance from them either. We need to get some kind of spark to generate interest in stocks again but right now I do not know where that will come from. I do not think we were expecting the Fed to deliver that spark but it would have been nice to get some direction other than the same statements dusted off and used again and again, month after month.
Our Positions
Our short positions at this point are only down slightly and the charts still look like they could go lower. The charts of the indices are still bearish so there is no reason to cover these shorts yet. However, I have put some new stocks on the long watch list tonight for us to use as a hedge against our short positions. These new stocks have been very strong lately, despite the markets down trend. You may have seen me post some of these as day trades on our message board but now it is time we put them on the bulletin. We want to be long only the strongest stocks in the market and ones that are moving up at an accelerated pace. Some of these may be extended right now so we will wait for slight pullbacks to enter.
For New Members
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