Constructive Action
What a difference a day
makes.
After
the Federal Reserve cut rates by 25 basis points yesterday, leaving
the markets mixed,
they
closed
significantly higher Thursday.
It appeared that overnight
the markets took time to comb through the Fed‘s
decision and digest what really has transpired. The fact is that the
Fed cut rates on the view that the economy is recovering, however not
to the state where Greenspan and his clan would like it to be. By
cutting the rates by 25 basis points,
the Fed is allowing the economy to play out its own hand;
if
weakness should persist by the next FOMC meeting, then the Fed will
have at least another 25 basis points in their pocket.
Today’s action was very
constructive and promising for the overall market. Â
IDEC Pharmaceuticals (IDPH)
after pulling away from its high,
moved slightly higher. The close was soft, but continue to monitor the
stock.
Costco Wholesale Corp. (COST)
looks poised to breakout of its 5 day handle.
Novellus (NVLS)
has an interesting pattern. NVLS broke out of an ascending symmetrical
triangle today on decent volume, but what I found interesting is that
prior
to the formation of this pattern there
was
a broadening formation which tested the 200 day moving average (not
shown). This is bullish
on
its own. With two bullish patterns setting up, I am putting NVLS
on my watch list.
Biomet (BMET)
is scaling higher in its multi-week channel. Volatility has dropped
off and BMET is beginning to consolidate. Note:
on a Weekly chart BMET is nearing a low volatility situation,
which indicates a move is imminent.
The majority of ETFs moved
higher today. Leading the pack was the B2B Internet Holdrs Trust (BHH)
as the fund tacked on 7.1%.
The WEBS-Index Fund (EWY)
moved higher 6.0% followed by Wireless Holdrs Trust (WMH)
which closed up 5.0%.
The Semiconductors Holdrs
Trust (SMH)
moved up 4.1%. What is promising about the price action today
(6/28/01) was price closed above the mid point of the red body (see
chart below) which acted as resistance. Continue to monitor price to
see if support holds.
Losing the most ground today
was the Oil Services Holdrs Trust (OIH)
as the sector continued to get battered. Notice how the Relative
Strength line made a new low which was not confirmed by the price
action. That typically is a good sign that the stock or fund
will test its lows and in most cases violate it (and vice versa).
The WEBS-Austria Benchmark (EWO)
lost 2.5%, followed by the Ishares Dow Jones U.S Energy Sector Index
Fund (IYE)
which traded 2.0% lower.
Remember that all securities
are risky. In any new trade, reduce your risk by adjusting position
size and placing open protective stops where you will sell your
new buy or cover your short in case the market turns against you. For
an introduction to combining price stops with position sizing, see
Loren’s lesson, Risky Business.
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