A Hankering Suspicion

We sure had to sift through a lot of noise and hand wringing this week.

While there were very few ground-breaking headlines, concerns continued over the economy, jobs, oil prices, commercial paper, how much the Fed will cut rates, the U.S. dollar, Iraq, and just about everything else you could think of. Meanwhile, the market rallied and recovered from last week's jobs inspired meltdown.

For the week, the Dow gained +2.5%, the S&P +2.1%, the Nasdaq +1.4% and the Russell 2000 +0.9%. History suggest that you're wise to fade large scale reactions to the jobs report and this week's rebound confirmed that tendency.

From the gains, it is evident that hope is alive that things are better than they seem while analysts cut earnings estimates aggressively and investors expect the Fed to cuts rates next week. Interestingly, many sentiment surveys out this week show substantial sentiment improvement.

As you can imagine, I've been asked many times this week where I think the market will go depending on what the Fed does or does not do next week. Frankly, I don't know and I'm not going to pretend differently. However, I have a hankering suspicion that the Fed will try to please people on both sides of the market. For example, they will likely cut rates, but then issue a hawkish statement that puts further rate cuts off the table. As an only a casual observer of the Fed and one who resists the urge of trying to game these kinds of FOMC decisions, that's my two cents worth.

My goal this week was simply to prepare for the Fed reaction, make a few small trades, and keep looking for tells along the way that may offer some guidance. Beyond all of the noise and speculation, the market itself will be our best indicator next week. For example, how the S&P 500 responds to a breakout above the 1490 level or a breakdown at 1450 will be at the forefront of things I monitor next week. It should be interesting.

Along with the stocks-only Q&A planned for next Friday (please send your question to me by Monday), I will be taking a closer look at which sectors are most likely to go up and down when the Fed starts cutting interest rates. You'll also want to review my stock screen machine this weekend as several screens received substantial updates.

Have a great weekend!