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Strategies & Market Trends : Trade/Invest with Options Jerry a Point & Figure Chartist
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To: SusieQ1065 who wrote (592)2/1/2001 4:49:51 PM
From: SusieQ1065  Read Replies (1) of 5893
 
Updated: 01-Feb-01

General Commentary

"The circumstances have called for a rapid and forceful response of monetary policy," said the Fed when it announced its second 50 basis point rate cut this month... So much for gradualism... Wednesday's rut cut was a tacit admission by Greenspan & Co. that they had gone too far in raising rates and are now moving quickly to prevent a recession of their own making... It also spoke volumes as to the Fed's perception of the economy... If the Fed thought that the slowdown would be short and shallow would they really be cutting rates so boldly and making such a forceful statement? The short answer is no... Briefing.com contends that the Fed sees a bleaker economic picture than most market participants... As the market moves to the Fed view, it will become less excited about bidding stock prices steadily higher on the assumption of a early second half recovery... We may have seen the beginning of this sentiment shift yesterday when techs sold off into the close.

Now is a time for careful trading, as we could be in for a brief bout of turbulence... However, the good news is that the Fed has plenty of ammunition at its disposal to bring about an economic recovery... Real rates are still way too high given the lack of inflation... Consequently, we could see a funds rate of 4.5% to 4.0% by year-end... In the end, it doesn't pay to fight the Fed so any pullbacks will be modest in scope.

Another reason for optimism is that we're likely to get a boost from fiscal policy as the weaker than expected economy and growing number of lay-offs will pressure Democrats to acquiesce to sizable tax-cut plan... But such a cut won't come until late Spring at the earliest.

For now techs are vulnerable to a shift in perceptions on the timing of the recovery... As such stocks that have enjoyed big moves so far this year and/or warned of trouble ahead are apt to spend some time backing and filling... A few names that quickly come to mind are Applied Materials (AMAT), Broadcom (BRCM), PMC-Sierra (PMCS), Yahoo! (YHOO), Applied Micro Circuits (AMCC), Nokia (NOK), Dell (DELL) and Handspring (HAND).

Robert Walberg
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