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Stocks back near lows after Fed leaves rates unchanged

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At 02:15 PM EST, the Federal Open Market Committee (FOMC) announced that it would keep it target for the federal funds rate unchanged at 1.75%.

In its policy statement, the Committee confirmed that economic activity is continuing to increase. However, both the upward impetus from the swing in inventory investment and the growth in final demand appear to have moderated. The Committee expects the rate of increase of final demand to pick up over the coming quarters, supported in part by robust underlying growth in productivity, but the degree of the strengthening remains uncertain.

All members of the Committee voted in favor of today's interest rate decision.

The phrase "growth in demand appear to have moderated" found the major market averages back near their early morning lows as the Dow Industrials gave back about 70 points to now trade down 174 points at 8,954 (-1.84%) with 27 of the 30 components showing losses. Only Procter & Gamble (NYSE:PG) $90.14 +1.28%, Eastman Kodak (NYSE:EK) $28.73 +0.13% and Merck (NYSE:MRK) $49.17 +0.26% are registering gains. Dow Components exhibiting marked weakness are American Express (NYSE:AXP) $34.98 -3.68%, Citigroup (NYSE:C) $36.21 -7.59%, JP Morgan Chase (NYSE:JPM) $30.32 -7.92%, Philip Morris (NYSE:MO) $43.90 -5.84%, AT&T (NYSE:T) $9.44 -5.12% and SBC Communications (NYSE:SBC) $28.25 -4.56%.

Citigroup Chart - Daily Interval

In our 01:00 update, we mentioned Goldman Sachs' comments regarding some banks with exposure to WorldCom (WCOM). My recently profiled bearish play did NOT have Citigroup (NYSE:C) as being one of the banks with a concerning amount of exposure, but bears that took this trade could care less. The group action has the weaker Citigroup (C) performing nicely and traders have a decision to make here. Do we look for further downside to the point and figure chart's bearish vertical count, or take a nice 11.9% gain off the table. One e-mail from a subscriber finds him holding the Sep. $40 puts from my bearish profile of June 7th. If we "project" the September expiration to the base of the regression channel, we see a nice "fit" with $32.50 level, which is pretty close to the bearish vertical count from the point and figure chart.

I guess if I had 10 puts contracts, I'd look to institute some account/trade management here and take 1/2 of the position off the table, then look to hold the remaining 1/2 until expiration or a trade near $32.50 were encountered.

Traders should be looking to manage their accounts and bearish trades accordingly. While there's enough "bad news" in the markets right now to choke a horse, it's always nice to lock in some gains on the weakness. There will always be future opportunities to short/put some rallies.

Jeff Bailey
Senior Market Technician
Option Investor

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