Dow Drops As Hopes Of Rate Cut Drops

FUNDAMENTAL ANALYSIS
Obviously, the US market is looking forward to a rate cut more than anything else... in fact, more than economic growth itself! The Dow was down 80.86 points today as Fed chairman released a positive review on the economy and the ISM services number turning in the strongest since April 2006. These positive indications seemed to push the possibility of a rate cut into the abyss and caused an instant sell off. The ISM Services index is based on a survey of about 370 purchasing executives in industries of finance, insurance, real estate, communications, and utilities, reporting on business activity in the service sector. Readings above 50% indicate expansion for the non-manufacturing components of the economy. While readings below 50% indicate contraction. The ISM services index checked in at 59.7 today, indicating a growing service sector. I would expect any heartache due to no-rate-cut to be temporary as a growing, healthy economy is still the underlying strength behind the stock market.

TECHNICAL ANALYSIS
Surprise surprise. The Dow did not make a new step in the staircase formation today but instead, it dropped slightly down. Even though the drop was slightly over 80 points, it is not a big drop considering the overall strength prevalent in the chart pattern. In fact, the staircase has not been broken the last 2 drops of 84.52 points (24 May) and 147.74 points (10 May). However, no speculations are accurate. Tomorrow is going to be a critical day for the Dow... it must make a new step tomorrow or risk going into a correction. Even though hedging during these times have hurt my profits somewhat the last 2 times, I would not risk not doing it again.


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