NewmanAlert: He says Fed willcut50basis BEFORE open.
i am thinking he meant to write "i am PRAYING now, down on my knees praying that fed cuts 50 basis points before the open tomorrow".
But he now states a secular bear market is in force(Just yesterday hesaidthelow for the year would are in, or close to it. Said comfortable sailing rest of theyear and now 24 hours later he is saying something different--typical)
<<At one point earlier today, as markets around the world were being smashed, the S&P futures were trading down the equivalent of roughly 500 Dow points (-4.1%). Tomorrow's opening is liable to be quite scary.
Regarding the possibility of a crash, we said in yesterday's Special Update that "the odds appear to be far too low to give this outcome serious thought." Despite the action around the globe today, we believe that crash odds are still low.
Crashes are ultra-rare events. We can count only three in the U.S. in the last 100 years; 1929, 1987 and Nasdaq in 2000.
We expect the Fed to announce a 50 basis point rate cut before the markets open. As is, this rate cut was slated for a week from today, so it might as well occur immediately. As in 1987, we think it is possible that certain large caps may "cooperate" by announcing big share buybacks. Also of note, although the mutual fund cash-to-assets ratio is still low by historic measures, the amount of absolute cash is actually at a record high.
There is only one circumstance that we are terrified about, the huge overhang of margin debt that we have cited for many, many months. This represents a wildcard that we cannot fully factor into our analysis.
However, if the Dow trades at 11, 519, it will be over 2000 points and fully 15% lower in only 17 trading sessions from the December 24th recovery peak. This meets most definitions of capitulation.
Our target of Dow 11,900 should easily be achieved tomorrow morning. Bear in mind our target zone was from Dow 11,500 to 12,100 (which was Friday's close). If earlier trading of S&P futures holds up, we may indeed see the Dow trade as low as 11,500 tommorow.
We expect to cover our 15% Trading Stance short of the QQQQ tomorrow and we will send an email as soon as that decision is reached. In the meantime, to avoid the possibility of any delay in our response, consider the short Qs covered if they trade at $43.50, down 4.1% from Friday's close (equivalent to a 500 point Dow decline).
After another rough couple of weeks trying to find a bottom, we expect the market to embark upon a modestly positive phase that should last for months. After that phase ends, we once again expect lower prices. We still believe a secular bear market is in force.
Alan M. Newman, Editor
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