Governors’ Gift

  • January 3, 2001
  • Marc Dupee

Alan Greenspan and the Federal Reserve Board of Governors gave the market and economy a much needed gift around 1:13 PM ET today, cutting interest rates by 1/2% and the discount
rate by 1/4%. The move surprised many and led to a stunning rally in stock index
futures. The move rippled through financial futures, rocking the dollar and
rattling bonds. 

Nasdaq 100 futures
(
NDH1 |
Quote |
Chart |
News |
PowerRating) exploded 480 points in the four minutes following
the Fed’s announcement. One of the most obvious signs of a potential reversal
today was the Turtle Soup Plus One Buy
 signal in Naz futures. The market provided two entry opportunities at the
“old” 20-day low trigger (from Dec. 21) at 2213. The second entry
through the 2213 level occurred in the five minutes preceding the 480 point
explosion. Only two stocks of the Nasdaq 100 closed in the red. SDLI
(
SDLI |
Quote |
Chart |
News |
PowerRating),
a Naz 100 component, jumped a staggering 53 11/16 to 192 3/8 to hand in the
day’s best point gain. 

Carolyn Boroden sent an intraday Nasdaq 100
(
NDH1 |
Quote |
Chart |
News |
PowerRating) analysis to the

TradersWire showing support at 2134-2148. The market held at 2131 one hour
before the explosion.

Trading in the Spoos pit erupted as well, with the March
contract
(
SPH1 |
Quote |
Chart |
News |
PowerRating) climbing 70.00 points before settling 61.20 higher at
1361.00. Dow futures
(
DJH1 |
Quote |
Chart |
News |
PowerRating) bloated 318.0 to close at 11,080.0.

 

Interestingly, the Federal Funds futures
(
FFF1 |
Quote |
Chart |
News |
PowerRating), one of the most
reliable predictors of Federal Reserve interest rate policy, had priced in a 60%
chance of a rate cut today. To learn how to utilize this valuable indicator,
see Loren Fleckenstein’s lesson on Forecasting
The Fed With Fed Funds Futures.

TradingMarkets bond Guru, Tony Crescenzi, was equally prescient in his first
post on TradersWire BondWire. Here is the post.
“The Fed is likely realizing that the more the markets clamor for a
rate cut, the more the Fed is putting their judgments up against the judgments
of millions of investors. This is a stance that Greenspan is loathe to take and
is a compelling reason for an early rate cut.”

Today’s rate move was obviously an “exceptional circumstance.” In
the words of the Fed these “actions were taken in light of further
weakening of sales and production, and in the context of lower consumer
confidence, tight conditions in some segments of financial markets, and high
energy prices sapping household and business purchasing power. Moreover,
inflation pressures remain contained.”

T-bonds
(
USH1 |
Quote |
Chart |
News |
PowerRating) head faked to the upside then tumbled nearly two big points
as traders bailed out of flight to safety positions. Both T-bonds and 10-year notes
(
TYH1 |
Quote |
Chart |
News |
PowerRating) made good on their Turtle Soup Plus One
Sell reversal signals and also traced and made good on similar, intraday
patterns. T-bonds closed 1 27/32 lower at 104 14/32 and 10-years closed down 1
13/32 at 104 24/32.

Implosion-5 List
member copper’s
(
HGH1 |
Quote |
Chart |
News |
PowerRating) downside
carried over to a new low, but also reversed on the rate cut as the stimulative
effect should increase demand for the industrial metal. Basis March struck a
New 10-Day Low yesterday on the near-10-year low in the NAPM report. The
report provided additional evidence that the economy is slowing and copper, an
industrial metal, is closely correlated with economic activity. Copper
registered a Turtle Soup Plus One Reversal signal yesterday.  

Both silver and gold made it onto the New 10-Day Low List
and fell. Silver is also an Implosion-5 List
member, and has seen nothing but downside, making it an excellent
Off The Blocks
play this morning. The March contract closed near the lows of the session,
ending down 5.0 at 454.5.

Gold continues to plunge out of its “swing”
double top. Last week’s engulfing bar at the swing double top and wide-range
bars provided additional downside momentum this morning. March gold
(
GCH1 |
Quote |
Chart |
News |
PowerRating)
recovered from its lowest levels of the session to end down .7 at 269.3.