It's Fed Week Again

Market Action:
Friday’s quad witch brought us quite a bit of volume in stocks early but as the day wore on, volume was about average.  By the end of the day, the NYSE did surpass the 2 billion share mark, again on a down day.

In the first hour, after dropping a bit at the opening, due to Friday’s more than expected increase in the CPI, but the market tried to stage a rally which took the Dow up just a little higher than Thursday and still under the 12,200 line.  From that high, the Dow spent most of the day dropping but there was not much conviction about the decline.  As the market closed, the Dow had rallied a little to close down almost 50 points.

Opinion/Analysis:
The drop we saw in the Dow from the high on Friday morning didn’t seem to be very strong and that gives us pause to wonder if the corrective wave (up) is still active.  The most we can say is that the market reserves the right to go higher.  This weekend we noticed a lot of attention being given to the subprime mortgage situation.  This is happening at a time when the media has already used that excuse to explain the drop in the market.

While our premise has been that the housing market would ultimately take down the market, we still have to be watching the movement of the market.  The contrarian in us has to wonder why there is so much attention focused on the subprime issue.  (You know how long we have been talking about subprime—it’s all in the archives.  Of course, we have talked more about the entire mortgage situation for a long time.)  

Beyond that, there seems to be a lot of whining about the drop in the market and that the Fed should now respond by lowering rates.  This cry comes after a decline that is about a week old.  We can only wonder what might happen when the market drops for a month or two or more.

The Fed is meeting this week and we will see if they have the capacity to withstand the fervent drumbeat of the market participants for a rate cut.  They probably can’t lower rates this week but you know as well as anyone that the Fed can signal their intentions.  That is in order not to scare the poor stock market.  The Fed news comes on Wednesday at the normal 1:15 CDT.  

Our Moves:
We were strongly pulled to act on Friday morning when the Dow reached up to nearly touch the 12,200 level but we failed to pull the trigger.  We are hoping for a Fed rally this week to give us a good opportunity.

This Week’s News:
Tuesday—February housing starts and FOMC starts
Wednesday—Fed’s decision on rates
Thursday—Leading Economic Indicators (lei)
Friday—February existing home sales

Dow Industrials:  12,110.41  -49.27
VIX: 16.79
HUI:  327.01
QQQQ:  42.83
QQQRR:  1.95 bid
RYVNX:   17.70
RYAIX:  21.99
RYCWX:  37.86
TLT:  89.85
BEGBX:  13.95