I wanted to get the update up early this evening for those interested. The text follows. Of course I may decide it's all baloney and change it this weekend. <g>
Have a good weekend all.
Stan
March 16...incredibly weak but still an interesting day. The PPI numbers were sufficiently lame to give some early promise of an up day, based on the speculation that the feds would now be likely to cut rates by 3/4 of a point next Tuesday.
Then the Consumer Confidence report threw a wrench into the works and the slide started. Why? Because the sense on the street was that with consumer confidence reversing to positive after 3 straight months of decline, the fed would all of a sudden feel as if its hands were tied and likely only go with a 1/4 to 1/2 point cut next week.
Frankly I don't buy it. Those consumer confidence numbers were largely obtained before the market took a hit on Monday along with the subsequent slide. Even though it's widely known that Greenspan looks closely at consumer confidence figures, my opinion is that the market's show of extreme lack of confidence will be the overriding factor in determining the 'extent' of the cut.
Combine that with the fact that for all the feds 'the market doesn't influence policy' rhetoric...it simply doesn't ring true. They continued to up rates to stop the euphoria when the threat of inflation had been tamed (the stock inflation scenario came into play) and its just as likely that they'll act to stem the rapid decline of stocks in the short term, or at least try.
Don't get me wrong, I think they're behind the curve as it is but I don't think they'll chance the possibly meltdown to the market that a 1/4 or 1/2 point reduction might precipitate. Do I think the economy needs a 3/4 point move? Not really but the market does and I think it'll get it.
HOWEVER, even assuming we get it, I don't think the carnage is over, simply assuaged for a bit.
Likely scenario following a 3/4 point cut in my opinion would be the obligatory rally that would likely take us over those recent gap down points at 2052 and 2168...and possibly as high as resistance at 2240 or 2308.
At that point I think the stark reality of the tech outlook would start to set in. By then it just might become clear that any recovery to earnings in the techs might not show up till the first quarter of 2002. In that case I would not expect any sustained rally to occur till the 3rd and 4th quarter of 2001.
So what would happen this spring/summer? It seems likely that once we rallied out at one of the above resistance numbers that a real pullback would ensue. I would guess we not only test today's lows but probably 1760 as well. The problem with the support at 1760 is simply that its to close to today's lows...leaving us with the specter of facing the 1450 point I've been mentioning.
There's no guarantee we fall that hard but with a very uncertain spring, marred by earnings disappointments and warnings, followed by the summer doldrums...it seems plausible we reach that point, before a very strong fall and winter rally.
As for Monday, I think barring a collapse in the Asian markets on Sunday night, the market will decide to sit back and watch and wait for the fed's move on Tuesday.
Comments and chart.
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