Monday, August 06, 2007


Houston we've hit bottom. The Dow made back everything it lost during Fridays sell-off and more. While the breadth was not impressive, the fact that we made such a strong rally in the face of Fridays action is a bullish sign. Volatility is back in a big way. As far as sectors go, banking was easily the cream of the crop with the financial ETF XLF gaining over 5%. The I-banks were on fire with huge gain in GS MER MS and even BSC came back from below $100 to close over $110. I suppose investors had time to reflect over the weekend and realise things were not all that bad in the financial industry subprime and all.

Oil dropped over $3 today and it appears prices have topped for now. Oil topped last summer and I have mentioned before that oil is likely to top soon and it appears it has.

Merrill thinks the Fed will cut rates in October as the credit crunch forces their hand.

Tomorrow is the big FOMC announcement. The market is likely to swing around a bit before going crazy once the announcement is out. Nobody is looking for a rate cut though if it happens we may see 14,000 on the Dow tomorrow. The language is going to be key. Investors are looking for soft language with hints of a rate cut to sustain this rally. Tough language is going to play into the bears hands. If I was a gambling man I would bet on a sustained rally tomorrow and perhaps a move to 13600 on the Dow.

No comments: