FED WEEK!

Yes, its Fed week again and another week of extreme volatility. Ex-Fed Chairman Alan Greenspan was criticized for having dropped fed fund rate all the way to 1% and keeping it at 1% to spur the economic recovery of 2003. Will Uncle Ben do the same thing this time round? It sure seem like a rate cut is certainly going to happen and with only 50 basis points left to the 1% mark, What could he have done differently? No matter what, I still see a 1% fed fund rate in the horizon because it is not the 1% that's the problem but how quickly the Fed bring that rate up again when the economy recovers that's the problem. As long as Uncle Ben bring rates up quickly enough when the economy recovers, we should not see any severe inflation problem.

Another important thing to look out for this week is the Consumer Sentiment and Confidence numbers (see economic calendar). Consumers are the backbone of the US economy (actually, they are the backbone of the GLOBAL economy) and a recovery in those numbers would certainly signal a bottom.

Finally, I believe the stock market is ready for one final capitulation right now as major indices stage significant bearish breakout out of their triangle formations. This breakout can clearly be seen in all technical charts including point and figures. I see the stock market going for at least the low of the last crisis at about 7100 this time round and this could be the final capitulation or the "wash-out" if you will. So far, the Dow has given back all its gains since the last crisis. Which means that if you are an ultra-long term investor or have invested in an index fund since 2003, you would have been back to zero and probably some losses by now. This is also why nobody should be pure buy and hold for the long term type investor in today's dynamic market anymore. Learning to hedge your portfolio with stock options is a skill that even long term investors need to master.