Aaron Task
What Now, Little Man?
SAN FRANCISCO -- Perhaps only Alan Greenspan can successfully call a market bottom, as one reader surmised. The Federal Reserve's shocking 50 basis-point rate cut today indeed appears to have put a floor under stocks. For one day at least, it not only put a floor under them, but lit a fire under equities. stellar gains today -- including the Nasdaq Composite's best-ever point and percentage rises -- the question of course arises: What happens tomorrow? "Flip a coin" was the most common answer market players gave when asked if the momentum will continue tomorrow. One market watcher compared predicting how markets will trade on a given day to "trying to figure out what a dog or cat is thinking." That said, I'm off to the animal shelter.... But seriously, before knowing how overseas markets react to Wall Street's big session or whether market players here will wonder -- on second thought -- if the Fed's action doesn't suggest something wicked this way comes, the early indication is that the rally will continue. Jim Volk, co-director of equity trading at D.A. Davidson in Portland, Ore., noted "an awful lot of buy orders at the close" today. Many investors were either in disbelief at the Fed's action or skeptical that the rally would hold in its wake, he suggested. When it became apparent the news wasn't a hoax and the rally wasn't going to ebb, those investors scrambled to get long (or cover their shorts). Many will likely continue imitating Roger Staubach tomorrow. "The Fed cutting now and Greenspan signaling further readiness to cut rates again if necessary, means the market is going to give the economy the benefit of the doubt and takes away the gloom and doom scenario," Volk continued. "It's not logical to go up another 300 points, but we've got the wind at our back now. This was a legitimate rally and could go a little while." In Globex trading, S&P 500 futures were lately up 3.70 to 1362.90 although Nasdaq 100 futures had recently given up prior gains and were down 3.50 to 2526. Still, the afterglow from today's events and the upside surprise from BEA Systems (BEAS Quote - Cramer on BEAS - Stock Picks) seem to be having greater influence after-hours than the warning from Inktomi (INKT Quote - Cramer on INKT - Stock Picks). "I think we go higher and that the [Value Line New Arithmetic Index] tags a new all-time high soon," predicted John Bollinger, founder of BollingerBands.com in Manhattan Beach, Calif. " I don't know if that's tomorrow, but it sure could be," predicting the S&P MidCap 400 and S&P 500 will follow the Value Line index into record territory in the coming weeks. Bollinger's bullishness, which he's espoused for some time and admitted looked dicey for a spell, stems from a belief there was "too much cockiness on the part of the bears," as evinced by the record level of short interest. Recent spikes in the Chicago Board Options Exchange Volatility Index, and in measures of put buying, also indicated a reversal was imminent, he said. Even noted short-seller and longtime Fed critic Bill Fleckenstein, of Fleckenstein Capital in Seattle, conceded today's gains will likely beget more, at least in the short-term. "We reduced our exposure" today, Fleckenstein said. "I don't know how far they can kite stock proxies, but I know a lot of lemmings will do the Pavlovian thing and buy 'em. " As you might expect, the short-seller was harshly critical of the Fed action. "It looks like [Greenspan] is trying to write a put for the stock market and it's not healthy," he said. "All I know is he ain't going to change things with this rate cut," be they continued overvaluation of certain stocks or that the economy is going to slow. Even some less bombastic observers, including those generally supportive of the Fed rate cut, agreed the surprise ease can only stem, but not stop, the ongoing slowdown. "The economy is going to continue to be weak for six months -- this doesn't do anything to the economy," said Mickey Levy, chief economist at Banc of America Securities, who has long argued monetary policy has been too restrictive. Today's ease "only takes away the insurance policy tightening in May." Continued economic weakness gets to the key question of whether Fed rate cuts today can quickly reverse the deterioration in corporate earnings growth. It's highly unlikely (nay impossible) to get a clear answer on that by tomorrow. All we know for sure is tomorrow's gonna be another day (hey, hey, hey) likely to hold surprises for the majority of folks on Wall Street. Today sure was.
Kindler, Gentler Nation
To those emailers (and there are a lot of you) who feel compelled to blast me for my erroneous prediction last night and argument today the Fed made a mistake , let's agree to disagree, but keep it civil, please. Finally, consider the following, a market-related twist on an old proverb: Let he who is infallible in predicting the actions of others, or she who has never made a bad trade or market call, cast the first flame email.
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