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FED relief

January 31, 2007
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The FOMC released their statement today at 2:15 PM and decided to keep the target fed funds rate at 5.25%. It seemed a foregone conclusion that they would not cut rates, but judging from the action in the markets starting at 2:15, I’m thinking what people needed to hear was that there wouldn’t be a rate hike. Even if slower, the economy is still growing and the bulls seem to want to run further. Look at today’s chart with 15 minute candles for the SPX, Nasdaq composite, Dow Jones Indusrials (Thinkorswim doesn’t support the ticker for the dow, so the DJX is the same thing at 1/10 the size) and the Russell 2000 small cap index. The red line is drawn before the 2:15 candle.
(click image to see it bigger)

Look at the total volume New York Stock Exchange for the past 4 days broken down into 15 minute chunks. The cross hairs on each day show the level right before the 2:15 period began. Today’s trading increased significantly as the market pushed rapidly higher in the last hour and forty five minutes of trading. Perhaps that seems like a silly and obvious observation to make, but it is a good piece of confirmation for the upside sentiment.
(I still can’t figure out why this Total volume chart doesn’t’ show the same numbers we see for total volume on the NYSE home page or Yahoo. Nevertheless, it gives a good relative picture.)

Though the Nasdaq and especially the SOX still look somewhat questionable in their technical strength, the Dow is back working on a new high and the SPX has jumped back above the 1431 resistance line I’ve shown on recent posts. So it seems the breakout may get another chance.
But most of all, I like the look of the Russell 2000 moving above it’s relatively orderly period of sideways consolidation. This would indicate that small caps would be good stocks to look for buys, or you could just play the IWM, Russell 2000 ETF. Remember that even if you’re wrong about a bullish stance, it’s best to get in near support so you know where to get out for a small loss. It did come in more than the other indexes off the high of the day, but strength tomorrow could be a great entry. I would look to 79 for new support and aim for a target of 81 judging from the height of the sideways channel.

Notice that the FOMC statement mentioned tentative signs of stabilization in the housing market. The housing stocks have been rising steadily since September and were up nicely today even before the statement and more so after. Our KBH is looking well on its way. 55 may yet be a point of resistance in the short term, but 60 seems like an inevitable destination.

I’m kicking myself over ISE, which I discussed briefly in the last post. If had stuck to my original plan to give it room up ’til 47.50, I’d be feeling very good right now. I guess this is one nof the major realities of options trading. The massive swings in option price can really bring out the emotions. This is why we have to examine what we as individuals are comfortable with. Mine was a good analysis and the exit was not such a horrible decision either based on what I was seeing. But the added pressure of time decay and the leverage of the option are more what weighed on my decision, emotionally, than my certainty that it was going to go upward, the wrong direction.
I don’t know what happened today, as there’s no major news, but the stock is down on big volume. The ideal bearish entry to make here would have been on the first lower high after second of equal highs. That also was a bouncing down off the MA and had 3 red arrows. Would have been much easier to sit through the turbulence during which I bailed out. Double GRRRRRR!
That this stock had such a down day with no obvious news when the market rallied strongly does not say good things for it at all.

Happy Hunting. If the market is going to start a another leg up, this is the place to be looking for entries. The VIX, by the way, feel lower again today for a definitive lower high.

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