Posted
Apr 29 2008, 08:50 AM
by
Richard Schwartz
UPDATE ON THE STOCK MARKET. Tuesday, April 29th, 2008: 6:30 a.m.
The stock market has some uncertainty – there’s that awful word again – about tomorrow’s Federal Reserve 2:15 p.m. interest rate policy announcement. For the first time in a very long time, we’re not quite sure what the Fed is going to do, cut some more, another ¼% say, or hold pat. It’s really a big deal when it comes to which stocks and sectors to invest in if not such a big deal whether or not to be in the stock market. The backstopping of Bear Stearns a month back signaled it was ok to get back into stocks. If the Fed continues its cutting ways tomorrow, the status quo remains. That is continuing pressure on the US dollar and thus maybe some more weak-dollar induced strength in commodities. But if the Fed doesn’t cut tomorrow, stops its easing cycle in other words, big investors likely will reallocate their portfolios. The consensus would probably come down that the US Fed is now switching to battling rising inflation, that they figure the credit crisis is past the flash point, as many market strategists have already said. In point of fact, this switch of Fed priority has already been foreshadowed by some recent very modest strength in the dollar and corresponding weakness in the overall commodity sector ever since that weekend surprise bail out of Bear Stearns. If you compare Bear Stearns’ stock chart with one of the gold index, you’ll see that Bear dropped out of bed on Friday, March 14th and the following Monday, March 17th. And that the price of gold (and silver and other commodities like the agricultural “softs” sugar, coffee, soybeans, etc.) peaked on March 17th and haven’t really recovered. A glance at Investor’s Business Daily (IBD) commodity and financial charts at the end of any day’s paper shows big downside “gaps” on March 17th, right on the day when past major market guru Robert Prechter, Jr. of Elliott Wave cycle fame predicted an end to the commodity rally. Schwartz View: As I’ve indicated above, we’re waiting to see if the Fed indeed does have the nerve to pull the plug on its interest rate cycle easing or not. Or at a minimum, at least changes its accompanying policy statement to prepare investors for a forthcoming end to the Fed’s easing ahead. Should be very interesting as we do have a big bundle of economic data releases this morning and tomorrow morning before the Fed speaks. Whatever they do, all indications now are that the marketplace is expecting an end to financial easing ahead. Besides general commodity weakness and gold below $900 -- strong energy is the one exception confusing and clouding over our views -- take a look at Mr. Bond Market, say the 10-year or 30-year US , and you’ll note they’ve also changed direction in recent days. In fact, a close look shows these benchmark, “flight-to-safety” vehicles did a bullish Double Bottoming chart pattern of their own around that fateful day of March 17th. Since then it’s been mostly higher bond yield (lower prices), another reflection of an upcoming Fed change and an indication that investors are not so scared about the financial system failing and the credit crisis spiraling out of control any longer.
Filed under: Principles of the Stock Market, Richard Schwartz, Commodities, Investing Strategies, Soft Commodities, Keys to the Market, Market Bottoms, Update On The Stock Market, Daily Update, Commodity Bull Market, Portfolio Strategy, Perspective, Federal Reserve, Government Intervention, Elliott Wave Principle