Wednesday, January 30, 2008

Market Rallies Briefly, But Fades Into The Close

The market rallied after the Fed cut, but sellers emerged and the market faded into the close.

I think this is a reasonable reaction given how many days the market had been rising prior to the announcement, and that fact that often traders take profits after a big anticipated news announcement comes out.

I think that the combined 125 basis points of rate cuts over the last 10 days should provide pretty good stimulus at some point. It certainly lessens the risk that some big financial institution continues to experience liquidity problems.

The mortgage insurers (ABK, MBI) are still the biggest worry out there. If one of them goes under, it would trigger a brutal selloff, in my opinion. And if this worry were not still out there, I think the market would already be much higher than it stands today.

That said, I will be looking to use upcoming weakness to add long exposure to the market. I don't see an imminent retest of the lows, and think that more rallies are in the cards. The S&P 500 should at least be able to get back above the 1400 level before running into resistance.

We may not be out of the woods yet, but these big rate cuts bring us closer. There may still be a retest in the cards in the near future, but that should mark the lows for the year, and would offer a great buying opportunity, imo.


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