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Fed Cuts rates 50-basis points!

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I'm looking for clues and building observations.

Now that we've got a decision from the Fed, we've got our work cut out. First observation would be that there's some weakness coming into stocks, and it remains important for trends to be monitored. If I'm a market maker, I'm probably going to try and undercut some "support" levels and see what kind of stops I can trigger to get some cheap stock and get a measure for selling pressure. Here's a "screen capture" from 02:50 EST.

Print Screen of Major averages at 02:50 EST

It's a simplistic, but quick way to measure what the market may be saying after the Fed announcement. If I did a "bullish" count on the number of indices trading higher immediately after the Fed announcement I would have come up with 27. 24 stock indices were higher and the 3 bond yields were lower (higher for price). I also counted 8 stock indices that were lower. Now I can simply count those indices up and down from above and make a relatively quick assessment of the market. The above screen capture indicates that 17 indices are up, while 18 are down.

Print Screen Immediately after Fed announcement.

Since a lower bond yield equals a higher price, I'm counting the bond yields at the bottom of the screen capture as +'s. 3 + 24 = 27.

That's not all folks!

While we've seen several indices turn red, what we really want to be looking for are major deviations or continued strength. By that I mean, those indexes that are moving inverse by a significant amount since the announcement on interest rates or those indices that are NOT giving back gains. These observations can become very key in the days ahead! Here they are.

Key Observations!

The NASDAQ Composite turned negative after trading positive before the Fed meeting. The Morgan Stanley High-Tech index also turned negative. What's KEY is that the Semiconductor Index (SOX.X), Disk Drive Index (DDX.X), Retail Index (RLX.X) and Networking Index (NWX.X) are all holding onto 3% gains or better. This may give bullish traders the important clue on which sectors to be concentrating in down the road. We've talked in great detail about the SOX.X, DDX.X and RLX.X recently, but have left out the NWX.X as bullish. One think I did notice today is that the NASDAQ Telecommunications Index (IXTCX) was trading up 1% before the Fed announcement, but now trades fractionally lower. This isn't a major observation, but if I've got limited amounts of capital, I may think that the Networkers are somewhat dependent on the telecom sector for future business. It's a real leap to think this, but we're trying to focus in on the strongest areas of the market to trade bullish in as possible.

Jeff Bailey
Staff Analyst

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