Blue chips will lead the market reversal

In hindsight (it’s always easier to see things that way!), it’s pretty clear
that the Fed wanted to gain the respect of the markets. One clone after another
came out and spoke with a clear hawkish bias. Overall, this is the exact same
Fed from Greenspan’s last few years as Chairman. I highly doubt that their
motive was to send stocks lower and significantly crimp the economy. My guess
would be that the Fed was jawboning the market by talking tough in order to try
to avoid their history of over-tightening. Commodity prices have pulled back
significantly over the last month and wage inflation remains largely
non-existent. Furthermore, with the economy clearly in deceleration mode, it’s
very likely that inflation will decline later this year.

As far as the equities markets go, at some point in the next few weeks I
wouldn’t be surprised to see a selling crescendo-type low put in. While this
could be a very solid buying opportunity to play a “summer rally”, it’s
important to use patience and not lose a few fingers by trying to be a
know-it-all hero. The tail end of a decline is often the most severe part, as
the losses can make your head spin in those last few days. Since high quality
names usually snap back first, it’s probably a good idea to focus on some of the
bluer-chip names for hints of some daylight.