FOMC Decision Causes Long Squeeze
Talk
to me, tell me your name
You blow me off like its’ all the same
You lit a fuse, and now I’m ticking away
Like a bomb…. yeah baby
Well if Lady Luck gets on my side
We’re gonna rock this town alive
I’ll let her rough me up
Til she knocks me out
  Chorus:
(Everyone now!)
She bangs, she bangs
Oh baby when she moves, she moves
I go crazy ’cause she looks like a flower
but she stings like a bee
Like every girl in history
–“She Bangs” as performed by Ricky Martin
The market
definitely moved in a way that would make Señor Ricky blush.
In a stunning move by the
Federal Reserve, which NASA experts at the Hubbell Telescope
claim was foreseen as far out as the Andromeda Galaxy, the short-term
lending rate was cut by an additional 50 basis points today. Although
the market got what it wanted, the FOMC clearly stated that they were
reacting to a stagnant
economy that has been tormented by rising energy prices,
declining consumer confidence, and decreasing spending by consumers
and businesses.
The central bank stated:
“Consumer and business confidence has eroded further,
exacerbated by rising energy costs that continue to drain consumer
purchasing power and press
on business profit margins. Partly as a consequence,
retail sales and business spending on capital equipment have weakened
appreciably. In response, manufacturing production has been cut back
sharply, with new technologies appearing to have accelerated the response
of production and demand to potential excesses in the stock of inventories
and capital equipment. Taken together, and with inflation contained,
these circumstances have called for a rapid and forceful response of
monetary policy…the risks are weighted mainly toward conditions that
may generate economic
weakness in the foreseeable future.”
Statements like these don’t make you
want to go out and bid up stocks that have
already moved 60-80% in the last few weeks, do they?
As a result, the hypesters on
television immediately began to focus on the possibilities
of another 25-basis-point hike that was rumored as a possibility
after yesterday’s horrific consumer confidence number. After both the
Nasdaq futures and S&P futures reacted to the FOMC decision by rallying
to new multi-day highs,
the tide quickly turned as a ‘long squeeze” ensued that
saw the Nasdaq futures implode nearly 145 points from their intraday
high.
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Late-afternoon trading saw some
serious profit-taking in the financial and brokerage
sectors that have been on a rampage for the past seven weeks. Technology
also saw some intense selling in names like
(
SDLI |
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PowerRating),
(
CIEN |
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(
BRCD |
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(
EMLX |
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(
CHKP |
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(
MERQ |
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(
TIBX |
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PowerRating), and the rest of the
“fat and bloated” glamours. In light
of today’s selling, I don’t detect a change of bullish sentiment yet.
For the time being, it
appears the greed cycle is alive and well and will probably
power the Nasdaq Composite above the 3,000 level in the days to come.
It is certainly without question that
the analyst community is determined on selling the fabled “second half
recovery” story to every sidelined dollar that
is waiting for a green light to jump back into the market. Once those
sidelined dollars are
cleverly lured back into technology, we will probably need
to get ready for the next leg down in this cyclical bear market.
At present, I am waiting for the
selling to abate and an opportunity to take some
long positions at decent entry prices. Do your homework tonight and
determine where you want
to buy the stronger names that may lead the advance back
up once it materializes. Let the market come to you, here. Don’t feel
as though you need to jump
in at the first signs of weakness and get long. The
market has a lot of soul searching to do in the next 2-3 days and I’m
sure the action will be
volatile, to say the least.
Short Watch: Brokers like
(
LEH |
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PowerRating),
(
MER |
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PowerRating)
and
(
GS |
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PowerRating) may have begun their fall from Grace. The QQQs
may need to test 62 and hold to warrant taking longs.
Long Watch: Drug stocks like
(
MRK |
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News |
PowerRating)
did very well after the FOMC decision. This
may signal a flight to defensive stocks tomorrow.
Either way, don’t read too much into
what transpired today. The Bulls aren’t going
to quit this easy. Get ready to play both sides, and trade ’em like you
see ’em.
Goran