OFHEO DAY--OH

Top Line: Wednesday saw another successful test of the 12,750 resistance line, with a high tick of 12,756.56 before coming off. This test was performed on a day that saw some important news. Now, we have to see if there will be another test or two.

One thing we want to mention this evening is the notion of a "bull" market. We have seen market action when the market is in a "bull" phase. Bull markets don't let you get in. If you want to buy something, you don't dare wait until tomorrow because even a pullback in prices tomorrow or the next day would put the price higher than it is right now.

On Wednesday morning, the market got a little shock from the durable goods orders which were down 5.3%, not a great result after all of these rate reductions. But how have those nice rate cuts been doing for the stock market generally? Well, let's take a look.

The time of the first cut, a 50 bps drop on September 18th, the Dow had been right around 13,500 and then the Dow moved up to its high close just over 14,100. Just prior to that cut, the Fed Funds rate rested at 5.25% and now after several cuts sits at 3% and you do remember what level the Dow is today. Yes, right at 12,750 or a little below that since the test was successful and the Dow couldn't hold that level.

So, with the Fed lowering rates from 5.25% to 3% in about four months, the Dow has managed to gain, hey, wait a minute, it has Lost 750 points. Good thing we got those rate cuts so the bulls can make some money.

The other big news on Wednesday was from OFHEO, the regulatory body that oversees the likes of Fannie Mae and Freddie Mac. OFHEO, the Office of Federal Housing Enterprise Oversight, a big mouthful if nothing else, said they would agree to allowing these GSE's to buy mortgages higher than the $417,000 limit they have had to live under for a while now.

This announcement launched both of these companies with both companies trading near decade lows. The launch propelled the Dow to get to our 12,750 test but then fell apart. FNM managed to close up 1% but FRE ended down on the day, this after both of them were up about 20% on the day.

There was one other, hardly worth mentioning, event on Wednesday, that being the Chairman of the Fed's remarks over on the Hill. He said some pretty amazing things (sarcasm, in case you were wondering) about the Fed being willing to lower rates if necessary and that we really should be concerned more about slowing Growth and not so much inflation. Let's see, the stock market has lost 750 points on the rate cut news so yeah, let's have some more cuts. The Fed can do magic with its elixir, or can it?

FSI: 75.57

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