Monday, August 04, 2008

Patience, Waiting for the Fed

Top Line: The stock market is biding its time waiting for the FOMC meeting results before it makes its decision to go anywhere. Once their announcement is made, we think the market will be free to head South, now, it might be after a little trading excitement surrounding the news but ultimately we should see it drop. We don't think there is much time left to wait for a drop.

Since the drop is coming as early as five seconds after the announcement, we have completed our deployment of funds to the short side of the market. It took us about two weeks for this job because we were trying to get good prices. One thing, we had a notion that the NASDAQ would peak out a little later than the SP500 and that is what happened.

The SP500 peaked back on the 23rd of July and the next week could not best that high. The NASDAQ 100 made its high back on July 30 which is the last day we purchased QID. All of this is pretty fresh and is subject to being the victim of a spike in the next day or two but we do not think this will be the type of move that will take out the July 30th highs.

Today's action included a drop in the price of oil that took it down to a new low for the move since it peaked. Oil is now down almost 20% from its July peak of 147.90 but even a big drop today of just about $4 was not enough to help the stock market out of the red.

We have normally considered the jobs' report to be the significant news item of the month. We have also considered the period of time surrounding the end of the month or the beginning of the month to be a stronger time for stocks. Plus, normally Monday's are strong, too. We mention these things here due to the Lack of strength since last Thursday, including the jobs' report.

With the Fed meeting anticipated to be a formality with no real changes in the announcement, there should be no surprises for the market. The news should bring us the end of what little strength there has been over the past few days. We expect a small rally on Tuesday with the possibility of some continued temporary strength after the announcement. This will lead to a swan dive into the bottom of the pool over the next few weeks.

More after the news on Tuesday...

FSI: 79.67 (dipped below 80 again) [Editor's note: should be 78.50]

VXO: 24.85 +0.59

SDS: 69.50 +1.30
QID: 45.83 +1.05

Dow Industrials: 11,284.15 -42.17

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