Top Line: Monday's followup to Friday was less than bullish and in fact was downright bearish. We have the possibility of a good sized drop but we do have the upcoming Fed meeting getting in the way on Wednesday. We are still bearish...hard to believe, we know.
As we look at the NDX, NASDAQ 100, we see a new closing low for the move with that gapping hole that the market could fall into in the next few days. The move in the NASDAQ indexes should catch up to the down move in the Dow. Today the NASDAQ COMP and NDX dropped to the level seen back in late April. The Dow has already broken through the April lows and is knocking at the March lows, only about 100 points away. As tenuous as this market is, there are very few support levels left.
After breaking through a major trendline on Friday (a trendline is the line that forms below an up move and above a down move, once broken should lead to more movement in the direction of the break) the Dow is free to drop as far as it feels it needs to. For now, we expect that the NASDAQ should be the leader to the downside from here and it was on Monday, as the Dow was flat and the NDX was down 0.75%.
We're not sure that there will be any excitement around the Fed's announcement on Wednesday that they are not going to change rates. That possibility exists but there really isn't much in the way of surprises that they can deliver. If they would change rates in either direction, that would give us a surprise and the market could react to that news but the probabilities are low, in our mind zero, for this event. There is no reason or expectation for the Fed to do anything with rates and this Fed is not about to be deviating from the plan. But, we digress...again...
Our main point is that there should be no surprise on Wednesday. No surprise from the Fed should mean No funny business in the market caused by the Fed's policy statement. That statement is constantly parsed for hidden meaning and the message could carry some shock value with regard to the Fed more definitely making the argument that they don't really mean to suggest they would actually raise rates anytime soon. That could lift stocks for about two minutes but not by much. Realization of a selloff is dawning on traders, it's a slow dawn...
We see there is an article slated for the front page of the WSJ on Tuesday and it belongs in the "truth is stranger than fiction" department. The article talks about a program for zero down payments subsidized by builders through non-profit organizations. Since FHA, a government funded housing division, allows 3% down financing, these builders, and other desperate sellers, are putting the 3% into the hands of would be buyers. FHA is not a GSE like Fannie and Freddie so there is direct government, that would be we the people, responsiblity. One ad suggests you should use your economic stimulus check for your down payment. Stranger than fiction, indeed.
As for gold, it dropped nearly $20 on Monday with what looks to be much more coming up. The oil price went up again on Monday supposedly due to a fire in Nigeria which trumped the Saudi's announcement to pump more crude. Still, the lid should be on oil for now. The next move should be down about $25 or more. Yes, taking gas down with it.
FSI: 91.49 (weakness in all four horsemen again)