Stock Market Analysis

Thursday, February 28, 2008

Market Drops As Probabilities Of Rate Cuts Rises...


FUNDAMENTAL ANALYSIS
Not so long ago, stocks drop everytime the possibility of rate cuts drop but this time round, its different. The Dow dropped 112.10 points today as a sour GDP number of only up 0.6% gives further support to Uncle Ben's promise of further rate cuts! Yes! Investors are actually WORRIED about further rate cuts! Why is that so? Because the rate cuts so far didn't seem to have done anything for the economy except to result in sky high commodity prices, rising inflation and a beat down dollar! In short, the rate cuts so far have injected nothing but negative things into the economy and further rate cuts are going to do nothing but push inflation over the roof, rocket gold and oil to record highs, jump gas prices at the pump, shove the dollar closer to becoming worthless pieces of paper and then still do NOTHING to solve the current housing and credit crisis. Solving money problems simply by making money cheaper and more worthless to own simply isn't the way to go. This is one crisis unlike any we have ever seen in history and I speculate that the full impact has yet to arrive. In fact, I think we should see a couple of high profile close downs before this is over. For now, with nothing solved in the economy, I would not believe in the possibility of a sustained rally. Of course, with the steepening of the Bond yield curve (see bond yield curve here), we could see a series of relieve rallies as money is forced back into the equity market due to low bond yields. This is time for investors to be nimble and probably explore other short term financial vehicles such as stock options.

TECHNICAL ANALYSIS
The Dow truly disappointed me today as it failed once again at the 12750 resistance level. In fact, I never saw the Dow as having the strength to break that level as the volume over the past few days are nothing short of disappointing. Well, that being said, I would classify the recent market action as a flag fake out and that immediate support level may be around the 12250 level.


Dow Technical Chart By BEST FREE Charting Software TC2007!

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2 Comments:

Anonymous Anonymous said...

Totally agree with your analysis and appreciate it. Question: why aren't you more negative - why not state dow will fall pass Jan08's lows

2:20 PM  
Blogger Founder, Master 'O' Equity said...

that's because I am an analyst, not a pundit. I don't go by gut feelings at all. I would need to see more evidence in both fundamental and technical analysis before I can make that call. For now, the market does not display the necessary weakness for a definite break pass the Jan lows.

4:37 PM  

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