Stock Ideas 
Market Watch Don't Fight the Fed
Market Watch Don't Fight the Fed 
Market Watch
|
The CRB Soars while the S&P 500 stalls Check out a chart showing the Q1 2008 action in the CRB Index, a widely tracked basket of 19 leading commodities, versus the S&P 500 from the beginning of the first quarter through Tuesday. |
|
| More... |
Most Popular
Login Form
| Don't Fight the Fed |
| Wednesday, 03 October 2007 | ||||||||
|
It’s a market where all the news is good news as stocks--especially technology stocks--continue to power higher. For the week, the Dow Jones Industrial Average was up 0.5 percent; the S&P 500 was higher by 0.1 percent; the Nasdaq Composite, which continues to provide leadership, was up nicely at 1.1 percent. Since the August lows and the start of the year, the Dow is up 11.01 percent and 11.49 percent, respectively. The S&P 500 is up 11.39 percent (lows) and 7.65 percent (year-to-date); the Nasdaq is up 13.19 percent (lows) and 11.85 percent (year-to-date). Bull Versus Bear ArgumentsIt was just about a month ago that the nonfarm payrolls report turned negative for the first time since 2003, and market watchers started uttering the "r" word: recession. Calls for a more extensive fed funds rate were heard. And as we all know, the Federal Reserve delivered, shocking the markets with a 0.5 percent decrease in the key lending rate. Presently, all news is good news. Bad economic news is greeted with continued calls for Fed intervention; this is good news because investors believe that Fed rate cuts are bullish. Bad news for Main Street USA and the economy is good news for stocks. Good economic news is always welcomed, and in this case, it shows that the Fed is vigilant in its job and that the economy isn't slipping into a recession. The adage "Don’t Fight the Fed" has the bulls all lathered up. As the bears will tell you, Fed intervention doesn't come without a cost. With gold and crude oil at multi-decade highs and the Dollar Index at generational lows, inflation (and some might even say hyperinflation) is rearing its ugly head. Another point the bears will make is the narrowness of the current rally. Key sectors, such as the financials and transports, continue to lag. And some might suggest stocks in these sectors are already in their own bear market. Looking Ahead There's no doubt that Friday’s nonfarm payrolls report will be widely anticipated. But rather than focus on the number, watch how the markets react. Will the markets continue to embrace good and bad news, or will another dynamic in response to the news begin to play out?
Other key economic data reported this week:
My Take Fighting the tape when all the news is being interpreted as good news is a sure way to underperformance. On the other hand, the bearish arguments are rather compelling. Bearish factors are often interpreted as “the wall of worry” and the reason stocks move higher. Bearish factors only seem to matter when stocks do move up, so it would seem that the path of least resistance is up. Several weeks ago, I showed our proprietary investor sentiment composite indicator. See Figure 1, a weekly chart of the Nasdaq. This indicator looks for extremes in the data from four different groups of investors:
History shows that when these investors are bearish, we should be bullish. Source : Trader's Talk This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
|
||||||||
| < Prev | Next > |
|---|