Online Stock Trading | Stocks move higher on higher trade as Traders “HOPE” for a FOMC Target Rate cut

Stocks move higher on higher trade as Traders “HOPE” for a FOMC Target Rate cut


Filed Under Market Commentary |

A late day surge helped stocks finish well into the green and with volume behind the move.  Wednesday’s action however, continued the V-shape move the market has begun since last Thursday.  Fueled mostly by expectations of a target rate cut traders pour back into the more beaten down sotcks.  Brokers most noteably had been the most beaten down group but, managed to come back a bit in yesterday’s action.  Watch the group move back to their respective 50dmas, make sure to watch volume closely as they could be setting up another shorting opportunity or gain strength.    A positive day for the bulls but, the day’s action doesn’t come without precaution.

The feeling on Wall Street of the Fed moving to cut the target rate is a bit too much for me.  Talking heads on CNBC and Bloomberg News are all claiming that WE NEED the Fed to lower the target rate.  When asked why, these talking heads claim it will relieve pressure from the credit markets.  I find it strange that the same folks have been saying how much these companies are flush with cash.  So why the need for the cut? 

There is absolutely no need for the FOMC’s Target Rate to come down any further than it is now.  What needs to occur is what Big Ben did last Friday.  Initially, I was not a fan of a rate cut of any kind believing it was only rewarding bad behavior.  I still believe it is rewarding bad behavior but, the idea of a Discount rate was that it was where Banks could borrow (under certain situations) at a discount to the Target Rate.  At this time, the Discount Rate sits 50bps above the Target Rate not at a discount.  I do favor Big Ben continuing to ease into the situation by lower the Discount Rate slowly to insure market stability.

Does this mean much for stocks?

I think we’ll be rallying for a bit here, right back to their 50dmas.  The action surrounding this area will be crucial for telling us where the market is heading.  RIMM, AAPL, and BIDU continue to hold and look strong confirming the recent change in the short-term and sub-intermediate trend change to up. 

Best of luck out there!

Market Speculator

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Comments

2 Responses to “Stocks move higher on higher trade as Traders “HOPE” for a FOMC Target Rate cut”

  1. Aaron on August 23rd, 2007 6:47 pm

    The talking heads have certainly gotten ahead of themselves. Now the market is pricing in things like a 50 basis point cut, which is not going to help stocks in the long run. The Fed will either cut by 25 or not move, and the market reaction to no move will likely be quite poor now that everyone has told us that we need a huge move now.

  2. Market Speculator on August 23rd, 2007 10:10 pm

    Hi Aaron…

    The V-shap I’ve been talking about could, most likely is attributed by the “HOPE” of some sort of move from the Fed…Now, I think the Target rate is fine, looking at the CRB index we are still holding the 300 level making me believe inflationary pressurs remain…therefore, lower the Target rate opens the FOMC to the inflationary door.

    But, I doubt Big Ben does anything in the interim unless something blows up.

    Are you sitting on the sidelines or playing this market?

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