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Sunday, September 18, 2005
Market Recap
The market was in rally mode on Friday as the bulls were determined to end the week on a positive note. The DOW gained 83 points, the NASDAQ was up 14 points and the S&P gained 10 points. The volume on Friday was huge but that is very deceiving because the S&P had a reshuffle and volume is always big anytime there is a rebalancing of the index of the largest 500 companies in the country. Do not be fooled by this volume for this reason.
The Market will probably be on hold for Monday's trading awaiting the FOMC meeting on Tuesday. It has been widely debated as to whether the Fed will raise rates this time or pause. Normally, the market has a good sense of what the Fed will do and their decision, when announced, is already factored into the markets, resulting in little or no reaction from the announcement. This time however, the jury is still out as to what they will do because of Hurricane Katrina's impact on the economy. I personally think that they will stick to a .25 basis point hike at this meeting but some market participants seem to think a pause is due. When there is no surprise, the markets reaction is mute. When there is a surprise, market reaction is normally overreaction. This announcement could very well end up surprising the market and markets swing widely in either direction if they are surprised by some unexpected news or event. It is anyone's guess at this point and that is why the market could overreact to the decision one way or the other.
It is a Vicious Cycle
Friday's rally could have resulted from Presidents Bushes' speech on Thursday evening. Just as many traders were starting to become concerned over the state of economic and earnings growth, The President's speech highlighted a possible aggressive spending plan to rebuild the damage from Katrina. This aggressive spending plan could be the fuel to get the economy back on its feet and result in huge earnings growth for many companies going forward. Stocks will always like news like this as this spending is good for the companies involved.
The Bears are undoubtedly concerned with the country's increasing debt load while the budget deficit remains in the red. The Bull's will argue, however, that history has shown that deficit spending has been good for both the economy and the stock market. The threat of this spending has caused gold prices to surge to a 17 year high and will also likely weaken the US Dollar. This weakening of the dollar will cause inflation and the Fed will have to continue to raise rates which will have a negative effect on stocks. If this sounds like we are running in circles, we are, it is a vicious cycle and it is called the economic cycle. This is exactly why we cannot get caught up in trying to predict what is going to happen in the stock market. The best approach is just to play the charts and not try to guess market direction over time.
In the short term, the Fed statement after the FOMC Meeting is the key to the short-term direction of the markets. Looking out longer term, we have to be concerned about the Fed reacting to offset the President's possible federal spending surge as outlined in his speech on Thursday.
STHQ Chart Index
If you go to the chart index in the left side menu, you can review and study charts that we have annotated for each stock listed in the past.
For New Members
For all of the new members with us, please make sure to read the link “How to use Bulletin” at the bottom of the Bulletin page on the website. It is critical that you know how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
Earnings Calendar
We have added the earnings link for each stock on the bulletin. To access the link for earnings, you can either use the link below or click the link on the bulletin for the corresponding ticker. Click the online bulletin in the left side menu for access to the earning calendar for each stock listed. It is not recommended to hold a position through earnings. You can always buy the stock back after the dust settles.
http://www.earnings.com
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