The Feds Song Remains the Same

The major stock market averages were down approximately 0.6% but the Russell 2000 fared worse, down 1.0%. The Semiconductors which were holding well most of the day eventually succumbed to the selling pressure, closing down 0.4%. Oil pulled back $1.16 to close at $66.23. Fear of Hurricane Rita is likely to keep a bid under this commodity for a couple of more days.

The stock market did a little "jig" immediately after the Federal Reserve announcement. It took approximately 30 minutes for traders to analyze the negative implications of the Fed's actions. This is a good case in point for why traders need to have an action plan prior to major announcements, whether they are Fed, Earnings, or Economic based.

We at Kcap, worked up our different scenarios prior to today's news, and were able to act swiftly once it was clear what the implication of the Fed report was. Gauging the stock markets reaction to the fundamental news is always dicey, but having a specific plan of action, "all teed up" in your computer, sure makes life easier. It is always better to plan your attack during calm periods as opposed to trying to keep your head on straight during the cross currents in the heat of the moment. Thankfully we were out of our long positions within 2 minutes of the Fed announcement. Many traders believe the knee-jerk reaction to the Fed is usually wrong. Keep in mind that it is not an issue when you factor that into your game plan as well.

Our concern for the stock market is that the counter uptrend (within the larger downtrend) that the market has been pursuing for the past few weeks is now over. The countertrend rally started when the market was not yet oversold enough. Therefore, it was very susceptible to bad news. We had hoped the Fed would have been friendlier which would have allowed the countertrend rally to reach slightly higher levels. However, now is not the time to be stubborn and cry for what would-a, should-a, could-a been. We must resolve ourselves to the fact that the Fed is content with staying on course with their inflation fighting campaign despite the destruction of an American city or virtually anything else.

If You Held a Taser to Our Head:
The NASDAQ which hit 2162 earlier today reversed hard after the Fed, and also may have put in a lower high within the downtrend. The countertrend over the last couple of days has provided fuel for the emboldened Bears to get even more aggressive. The bulk of earnings warnings is still yet to come and seasonality is still a negative factor. Near-term support on the NASDAQ of 2109 may be in jeopardy. If that support fails, our previously stated target of around 2090 still remains.

See You Tomorrow.

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