Fed Cuts Discount Rate Ahead Of The Big Week!

FUNDAMENTAL ANALYSIS
What was shaping up as the start of a rally last week ended up disappointing everyone in wall street. Investors are simply not ready to believe in the market yet with all the dubious economic data and the Fed's exceptional actions from day to day. In fact, the Fed actually did a 25 basis point discount window rate cut along with a new lending facility for big wall street firms effective Monday on Sunday! It is extremely rare for the Fed to cut during a weekend and all that did was to show their panic, spreading that panic into the Asian markets. Asian markets are collasping right now ahead of the US market opening going as low as 4% in some markets. Gold not only broke the $1000 per ounce level but actually broken the $1020 level as well at the moment of this writing.

The flight to quality is obvious at this point in time and doesn't seem to be slowing down as bond yields continue to head lower (see Bond Yield Curve). Bond yields drop when bond prices rise due to excessive buying. Again, a sign of the flight to quality. The last time the bonc yield curve got this steep was just prior to the 2002 market recovery out of the tech crunch. This continues to suggest that we are definitely over the halfway point of the flight to quality. What exactly does flight to quality mean? Flight to quality simply means money going to where it is safer and more productive and yes, investors obviously still find stocks risky and unproductive right now even with dividend yields going to new highs for many good companies.

This week is going to be a huge week with the FOMC decision on Tuesday with its widely speculated 100 basis point cut and options expiring on Thursday ahead of the Good Friday holiday. A short week with a TON of volatiliy is how I define the week. Definitely a week for speculators.

Contrary to popular belief, I am actually very happy to see such a mess and panic. Without such a panic, there will be no hope of a return to the bull markets. This is what analysts like myself call a "Capitulation". In fact, we should see a few high profile windups before this is over.

TECHNICAL ANALYSIS
The weekly Dow chart has yet to show any definite signs of a turn around yet... this means that the market is still largely negatively inclined in the mid term. On the short term daily charts, the January Lows still look largely intact and holding its ground with a slight negative inclination. There are no definite signs of a directional bias as yet and I would still classify this as a sideways market condition. Our covered calls and ride the flow strategies are working extremely well in this market condition though. In options trading, there is a strategy for every market condition indeed. Volatility is spiking through the roof right now as well, which suggests a short term rebound coming up due to the overdone market (see volatility curve).