Friday, September 28, 2007

September 2007 Rewind - Ben's Emotional Rescue

This September, equities logged their best monthly performance since April, and their best September since 1998. Once again, Ben Bernanke and the Federal Reserve came to to our "emotional rescue" with a surprise 50 b.p. reduction in the Federal Funds Rate. The markets haven't looked back since (the Nasdaq 100 in particular), and once again the indices sit near their respective prior highs. Meanwhile, the dollar continues to plummet as commodities explode higher.

By the end of the month we were in a "bad news equals good news" environment, with every little disappointment signaling the possibility of further rate cuts ahead. Today, the Fed's William Poole threw a little cold water on that expectation, but that apparently is part of his job description. Looking forward, it seems to me that the market may be setting itself up for a small pullback presently based on the recent strong gains, increasingly negative news cycle, and local resistance at the prior highs.

The Standard & Poors 500, Dow Jones Industrial Average and Nasdaq 100 may be traded through ETF proxies, including the SPY or IVV, DIA and QQQQ, respectively.

Volatility: Reduced (VIX 17-28)
Direction: Positive

[Click to enlarge]

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