January 29, 2008

All eyes tomorrow will be focused on the Fed and what they will provide the market with in terms of a cut in interest rates. The future course of the market, at least in the near-term, hinges primarily on the decision that the Fed makes and the comments that they provide at the conclusion of their FOMC meeting. The decision will be made at 2:15 PM EST. Like the past decisions made, the volatility following their decision is usually enormous. Often times they have caused brokerages such as TDAmeritrade and others to have problems with their servers as investors and traders alike all try to execute their trades at once. Tomorrow will be no different, and if you are planning on trading immediately following the announcement, expect there to be possible difficulty in accessing your accounts, depending on who you’re with.

So what’s to expect tomorrow you ask? For one, there will be a lot of emotions involved. There has been a lot of idle money sitting on the sidelines waiting for the Fed to make the first move, before they decide to position themselves accordingly. As a result, there are two outcomes to expect from tomorrow, either a strong sell-off or a strong rally. The markets are likely to make very little movement prior to the announcement, though. If the Fed gives us a 25 basis point cut, expect the markets to sell off strongly (this however could be mitigated somewhat by a positive FOMC Statement). If Bernanke announces a 50 basis point cut, then the market will likely rally around such an announcement, assuming that in the FOMC Statement, that there are no mentions of this being the last rate cut (which we are pretty much sure won’t happen). The final scenario is a 75 basis point cut that will more than likely see a major rally in the form of 3% – 4%. Such a scenario is not as likely as say, a 50 basis point cut, but it nonetheless could happen.

Here at Shareplanner, we believe that the Fed will give us a 50 basis point cut. If they do anything less, they are risking a major sell-off and would almost make a mute point of the emergency rate cut they gave the markets last week. They don’t want that to happen, and they are going to do what is the safest, and in this case, they know the markets will react favorably to the 50 basis point cut (isn’t the Fed not suppose to be concerned with day-to-day actions of the markets?).

So be calm tomorrow, and don’t be surprised by anything that happens.

Let’s review the charts…

The NASDAQ moved up some today, but nothing to write home to mom about. Volume was extremely light, as investors seemed a little timid to make any major trades ahead of the FOMC announcement tomorrow.

S&P spent the entire day in positive territory and managed to finish up a little over a half percent. Like its counterpart, not many shares trading hands as the smart money remained on the sidelines.