Volatility Continues Ahead Of Fed Decision...

Volatility describes how suddenly and without warning, changes can happen. A volatile mrket is one which can change its direction or nature suddenly and without warning. This is the market condition that we are all in right now.

The Fed meeting is next week (18 Sep), where the Fed is expected to cut rates, but as the Fed meeting draws near, more and more horrifying news suggesting that the economy is going into a recession hit the wire; Payroll dropped for the first time in years, Fed official comments that the credit crunch is going to hurt the economy and consumer spending, employment is down, employment rate dropped, percentage of industries adding jobs dropped, and most scary of all, Bernanke's recent talks doesn't give a hint he is about to cut rates!

Uncle Ben's stand on this matter is clear... a rate cut is a monetary policy which is aimed at solving economic problems, not a move to salvage the stock market. But imagine this... you are now paying through your nose for your monthly mortgage installment, with little to spare for food, let alone luxury... how is that helping the economy? A rate cut will alleviate the monthly installment pressure through a reduction in the installment amount, allowing you to buy more food and probably some luxury. That way, more money returns to the economy, consumer spending goes up, consumer confidence goes up. How is that not helping the economy... and the stock market of course.

So far, we are not seeing a definite pricing in of a possible rate cut in the stock market yet. The Dow continue to fiddle on top of its weekly 30MA, which is a good thing. However, if the Dow should drop today significantly, it will breach the weekly 30MA and form a clear bearish channel on the daily charts... that could mean a lot more downside to come. For now, I remain optimistic as the Dow is still closely replicating its behavior back at 29 March where a small 2 to 3 days ditch occurred before a full scale rally. Tomorrow, the market shall tell us its decision... up or down.