Wednesday, October 08, 2008

Fed Fires Off 50bps With 150bps To Go

Top Line: As we expected, Wednesday was a wild day. We would expect more volatility in the market over the next few days. Plenty of opportunities still available.

With the gold mining stocks kicking into gear, we know the bargains aren't quite as good there as they were on Tuesday. That doesn't mean that the GDX shouldn't be purchased. It just means that the very low price is now gone, more than likely, and any further profit will be somewhat diminished because of the higher price that would need to be paid.

Gold and mining stocks benefited from the global rate cut with both performing to the upside. The GDX was up close to 15% on the day. We have been buying GDX over the past week or so and we hear some of you have been, too. A day like today makes you glad you did.

The stock market tried to benefit from the orchestrated rate cuts but couldn't really decide one way or the other and finally just gave up at the end of the long, wild day. The Dow was down nearly 200 points making it six down days in a row. Today's new 52 week low count is unbelievable at a full two thirds of total issues traded, 2223 out of 3302.

The NYSE volume figure was a little heavy but just over 2 billion shares, not anything to get too excited about one way or the other. We would have liked to have seen a large volume day (4 billion shares or so) with a nice reversal to give us a better idea that the market has turned but you don't always get what you want...no, you don't...oh stop it.

Going back to the market action, it was a wild ride as we expected yesterday and we didn't even know that the Fed was going to lower rates. The rate announcement came very early here in the US, well before the market opened.

The futures had been down about 3% going into that announcement but jumped to being up about 3% right after the news. Then before long, sellers appeared and sold off the futures so that by the time the market opened the prices were down about 2%. From there the Dow went on a quick 400 point rally within 30 minutes and then sold off over the next several hours to new lows on the day. From there the Dow rallied 400 points again and traded there for about an hour (up 200 or so on the day). In the last 40 minutes there was a furious selloff that dropped the Dow 400 points. That is a wild ride.

The wild ride had a positive effect on the volatility indexes. At mid-day the VXO hit another high for the move of around 72...72!!! This alone is enough to make you want to buy stocks so we did. We have been buying modest amounts over the past few days but today we stepped up our buying and probably did two to three days worth of purchases. We have learned our lesson that we need to keep some powder dry for even better prices...like we had today. Amazing.

We leave you this evening with the market on the edge of exploding to the upside. There may be another pullback after that rally but the question remains, will it take the market back down to these levels. Prices are great and we continue to buy.

GDX 31.26 (up 14% today)
BGEIX 15.13
HUI: 299.49 (up 18%)

FSI: 53.07 (a brand new annual low, barely)

New long ETF's, QLD is based on NASDAQ 100 and SSO based on SP500:
QLD: 35.57 -0.93
SSO: 34.54 -1.50

VXO: 68.23 (Sixth close over 50 and second close over 60)

Dow Industrials: 9,258.10 -189.01

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