Don't Get Blown Away By Rita

The stock market did not weather the storm too well (pun intended). Breadth was negative at 2:1 decliners over advancers, but volume was moderate. All of the major averages including the Russell 2000 were down approximately 0.8%. The Semiconductor sector faired worse, down 1.4%. Oil was up around 7% which led the stock market down by the Bull's nose ring.

We are going home 60% exposed. We used today's weakness to deploy some of our cash. Not only do uptrends and downtrends persist longer than expected, but so do countertrends, as we believe we are currently in the midst of. Friday was up, today was down, and tomorrow will offer the catalyst to be up again. Should this happen, the countertrend would still be intact, perhaps reaching 2180 on the NASDAQ over the next few days. Admittedly we were surprised by today's sharp negative reaction and over obsession with Tropical Storm Rita. However, we believe this to be very temporary.

Tomorrow is the all mighty Federal Reserve meeting on interest rates. Stock market participants have a lot of analysis ahead of them. Determining what the Fed might do is confusing enough, but trying to figure out how the stock market may react is daunting. How much is already baked into the cake, Fed credibility, Alan Greenspan's legacy, and the Fed's future transparency are all important considerations for traders to contemplate.

If You Held A Taser To Our Head:
Your friendly neighborhood Kcap Team will be putting up a post tomorrow pre-Fed with our analysis. Tune in at the same Bat time, same Bat channel, for our take on what the Fed may have in store and how we intend to position in front of this important news.

Have a good night.

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