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So far, rate cuts have had little effect

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While traders and investors await today's news from the Fed regarding interest rates, so far it would be fairly apparent that the Fed's action has had little effect on stocks. Some of the stocks that have benefited the most have been some of the deep cyclical group. It's troubling to me though at just how little these groups have actually benefited though as it relates to their respective indices.

For example, the Forest/Paper Products Index (FPP.X) closed at 325 on January 02, 2001, which was the day before the first Fed rate cut. While the index did trade as high as 352 in the months following, the current level of trading at 321 makes one question just how soon it will be before we do see an economic recovery.

Forest Paper Products Index - last eight months

The FPP.X would be my "sector of the day" for traders to be trying to implement some bullish trades in. Everyone talks about how long it takes for Fed rate cuts to take hold and stimulate an economy and some of the deep cyclical sectors have barely budged even though the Fed has been rather aggressive. While some may chuckle at the marginal moves in some of the deep cyclicals, the groups look like strongmen compares to many technology sectors which are down more than 50% from January 3rd levels. Stock symbols that make up the Forest & Paper Products Index (FPP.X) include BCC, BOW, GP, IP, LPX, MEA, SSCC, TIN, W, WY and WLL.

Throwing darts

Traders that are going to speculate in some technology stocks before today's Fed announcement might as well throw some darts and the Wall Street Journal listing and see what you hit. I still feel that technology stocks won't get a broad rally going on a continued basis until we start seeing some of the deeper cyclical indexes strengthen further and take out recent highs. I couldn't disagree MORE with this morning's guest on CNBC and Eric Gustafson on his "overweight technology" statement. That makes no sense to me considering the lagging bottom lines of many of the largest manufacturing and cyclical companies in the world. Those companies are nowhere close to increasing let alone spending their IT budgets on a broad scale. Any spending these companies are doing is targeted and specific areas and stock selection is paramount. To think otherwise I believe is simply thinking like a fund manager that is trying to increase inflows into his/her mutual fund.

Jeff Bailey
Senior Market Technician

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