After The Fed

December 20, 2000
Kevin Haggerty

In Tuesday’s commentary, I
said that cutting rates would be the surprise and the expected is probably
neutral bias and cutting the rates in January. So what did we get? The Fed left
rates unchanged, as most had expected. However, it did move to an easing bias.
Maybe the media built up a rate cut, but the institutions did not expect one
until January.

The Fed told us that there
is more risk for economic weakness in the future. The rotation of stocks has
signaled that for quite some time. In light of the expected, the extent to which
the futures accelerated the down move, as they always do, surprised me. This
forced any existing retail longs out, it precipitated sell programs and
institutions scaled down lightly or just walked away. What you then saw was the
plug pulled by the market makers as they got out of the way, i.e., take the
minimum amount on the way down until you find the buyers.

This is always exaggerated
in the Nasdaq market because what they are obligated for is just 100 shares and
then drop their bid. This inherent weakness in the market maker system is
exaggerated on days like yesterday. The Nasdaq had 2-to-1 decliners over
advancers with a volume ratio of just 16. On the NYSE, 1.3 billion shares traded
with a volume ratio of 49, and the breadth was even. Yes, there is more weakness
in tech stocks and that’s what the Nasdaq Composite is mostly composed of and
certainly the NDX 100. But it always seems to be accelerated in the Nasdaq
market.

The knife down in the NDX
100 as the futures selling hit took the index down 8.9% from 2635 to 2400, where
it closed. The S&P 500 declined 3.04% from 1346 to 1305 before closing at
1305.60. It didn’t help the market’s fragile state when they punished Ciena
(
CIEN |
Quote |
Chart |
News |
PowerRating)
-24% for its deal with Cyras, or a Siebel
(
SEBL |
Quote |
Chart |
News |
PowerRating) -19%, as CSFB said growth
in Siebel’s core accounts is moderating.Â

For today, you should
certainly be prepared for Trap Doors if the retail want to cleanse themselves on
the open because you can bet the professionals will make them pay dearly. From
an index standpoint, the NDX 100 made a new low yesterday, so if we get an early
down, you should be ready to play a reversal of yesterday’s low if you get
it with a tight stop right below it.

face=”arial, helvetica”>(March Futures)
Fair Value	size=2>Buy	size=2>Sell
19.45	Â 20.75Â	Â 18.10Â

Pattern
Setups

On the short side,
continuation shorts in some of the Chosen Ones that closed below the 200-day
EMA and in the bottom of the range are abundant, but the early gap downs will
nullify trade through entry, so look for second entry only in those
stocks.Â

Have a good trading day.

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After The Fed

BUY THE FEAR, SELL THE GREED

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