Storm "Bears" Down 9/21/05

Good Morning

Overseas markets were mixed and U.S. Futures were pointing to a negative open throughout the morning. There was no major economic news this morning. Oil and Gold are both trading higher.

Key tell stocks are: Microsoft (MSFT) which is restructuring into three business units to better compete with increasing competition, Intel (INTC) which caught an upgrade from Merrill Lynch, Advanced Micro Devices (AMD) which was downgraded also by Merrill, Qualcomm (QCOM) raised their Q4 guidance, Federal Express (FDX) handily beat earnings estimates on increased shipments, and Morgan Stanley (MWD) lethargically beat Wall St. estimates.

The stock market continues to be under pressure after the disappointing Federal Reserve announcement on interest rates yesterday. The downtrend has been resumed and is picking up speed since it has been refueled from the counter uptrend over the last few days. The Semiconductors and Small Caps are both acting equally bad, displaying the fact that this market is not yet oversold. Some more downside should be expected.

Suddenly traders are cognizant of the fact that the economy is showing clear signs of stagflation, we are still in the midst of warnings season, and the price of Oil is still high and rising. Mind you, all of these scenarios have existed for quite a while, but the market chooses to focus or ignore them at its leisure. Understanding the short, intermediate, and long-term psychology of the market is more of an art than a science.

Hurricane Rita, with its new Category 4 status is exasperating the sour mood. In fact the likely scenario is that the stock market over reaches to the downside due to this event. The fact that the Hurricane is not expected to hit until Friday, creates the perfect storm of fear and uncertainty for short sellers to exploit all week. Immature Bears who are the first to short stocks, usually ETF's (Exchange Traded Funds), can be easily spooked by the still remaining Dip Buyers. Therefore, the makings of a potential upside spike are developing and should likely offer an attractive entry late Thursday or Friday morning. Maximum uncertainty over Rita is likely to peak Thursday evening.

We are aware of the economic impact this storm may cause; however, the stock market risk reward may favor a very quick tradable bounce for those brave souls willing to buy ahead of the weekend and flip into Monday's possible strength. We are waiting patiently with approximately 80% cash for the time being for this upside development to occur. NASDAQ 2109 may provide an opportunity to dip your toe in the water. Save most of your ammo for later in the week.

Just a trade and just a thought.

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