Why I Think You Could See Quite A Rally

  • January 30, 2006
  • Chris Curran


The major indexes rebounded from the previous week’s
sharp declines with a pretty impressive performance.  Market pundits
cited robust earnings data for the gains, but more than likely it was further
anticipation that the Fed was nearing completion with regard to further rate
hikes, especially with the current trouble-maker heading out the door.  Early in
the week, equities largely traded sideways with a minor upside bias.  However,
this changed on Thursday and Friday when the key averages posted solid gains. 
The advance was strong enough to allow both the Russell 2000 and Dow Jones
Transportation Index to record new all-time highs.  Technology and
Transportation shares out-performed, while weakness was seen in energy names.

Coming into
the year, the focus was on sectors such as Internet, Precious Metal and energy
names from the long side.  The focus on the short side consisted of interest
rate sensitive shares such as Homebuilders.  However, with Friday’s extremely
soft GDP data increasing the chances of the Fed becoming more dovish, it may be
time to change that focus again.  This is because if the Fed goes on hold,
interest rate sensitive shares could see quite a rally.  Even though the Housing
sector could very well be entering a secular downtrend, it probably won’t matter
in the near-term if the Fed were to indicate that they are done raising rates
for this cycle.

The Fed
stopping would likely add weight to the “soft landing” scenario, which
incidentally, would be very similar to 1995 when stocks started to rally higher
off similar bullish economic news.  While I believe a comparison to 1995 could
prove overly optimistic, as usual, it’s probably best to wait until after the
Fed Meeting before making any major bets in either direction.  Tuesday also
marks the end of an era as current Fed Chief Greenspan officially retires. 
Those of you who’ve read my columns for the past few years know my thoughts that
a Fed Chief has no business sticking his nose in the equities markets as much as
Greenspan did.  Nor, in the history of the equity markets, have we seen market
participants so closely “hinged” to every word that spewed from that man’s
mouth, despite his performance record.  So, on that note, all I have to say is
“Alan, don’t let the door hit you in the a** on your way out.”


                    

 

       

Symbol Pivot       R1 R2 R3 S1 S2 S3
INDU 10881.43 10958.12 11009.02 11085.71 10830.53 10753.84 10702.94
SPX 1281.76 1288.34 1292.96 1299.54 1277.14 1270.56 1265.94
ES H6 1285.67 1294.08 1298.92 1307.33 1280.83 1272.42 1267.58
SP H6 1286.07 1293.63 1298.07 1305.63 1281.63 1274.07 1269.63
YM H6 10907.33 10991.67 11040.33 11124.67 10858.67 10774.33 10725.67
BKX 104.12 104.71 105.25 105.84 103.58 102.99 102.45
SOX 552.27 558.24 565.56 571.53 544.95 538.98 531.66

 

Please feel free to email me with any questions
you might have, and have a great trading week!

Chris Curran


chris@tradewindsonline.net

 

 

 

Â