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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Uncle Frank who wrote (76796)	5/10/2001 5:46:51 PM
From: American Spirit	Respond to of 99985

Fed cuts were all rallied into if you remember. Selling afterward occured when the Fed disappointed by lowering only .75. But all expected Fed cuts have been rallied into. Hey, maybe it won't happen this time but from the tech slide today I think we have a lot of bargain-hunting and short-covering fuel to add to the fire. Tomorrow things may turn around fast for techs. IBM just gave very strong guidance. The bounce could happen quickly and dramatically and continue for several sessions.

To: Uncle Frank who wrote (76796)	5/10/2001 7:21:22 PM
From: t2	Read Replies (6) \| Respond to of 99985

I am starting to rethink my bet on a rally ahead of the rate cut. It appears to me that there is a possibility that traders are already getting set for the "sell on the news" scenario that they expect to see unfold. That is what explains today's weakness. I might be over-analyzing but it would not surprise me to see a choppy market (down) Friday and Monday followed by a "buy the news" rally starting Tuesday and lasting until Friday. There is no other way to explain the selloff today. The shorts are convinced the market will drop after the cut..so what is the point of covering today, tomorrow or Monday. To them the FED is no longer a factor because their actions are already anticipated by the markets. After all, it is not the first or second rate...it is getting routine. There is no other reason for the drop that we have seen on the Nasdaq today..other than the positioning for a "sell on the news" of the rate cut. Mutual funds are obviously buying tech lately and fund flows have been good into US equity funds and we have seen bonds weak today as well. What happens when the selloff that traders are expecting does not materialize on Tuesday? Sell on the news does not happen if everyone is expecting it. <g> We get a major league short covering rally starting Tuesday and lasting right into Friday. The real buyers may be waiting for that better buying opportunity that they are expecting. Put it all together, and move up should be explosive! Just a few thoughts on what people expect to happen and how it could be totally the opposite. I am totally neutral now on what I believe happens tomorrow or Monday but expect a rally starting Tuesday. The only thing that would change that is if in fact we rally ahead of the cut. Under that scenario, I would probably be selling ahead of the news. Under either scenario, the Nasdaq should be higher next Friday than it is today. Of course it will be driven by real buying by mutual funds...and in the end that is usually what determines direction. BTW--I sort of predicted the Euro bank rate cut that happened today or had at least felt the surprise factor made it a greater probability. That is why the suprises are what moves the markets. 75bp would be a surprise although I don't expect it. However, the market rallying on a 50bp cut is not expected by traders right now...and for that reason, I am betting it happens...will catch the shorts off guard, IMHO.