Tuesday, September 11, 2007

To Cut or Not to Cut

My system has barely moved higher but it is almost a stall and I'll put the neutral signal on. That said, my read of my system yesterday turned out to be the right one and the bulls got the big rally although only causing a flatline and not an uptick in my system which is somewhat surprising and disappointing. Usually, the bulls wouldn't need a confirmation in these cases but this time I want to see some follow through especially since the S&P has yet to break 1504. The biotech sector has been hot which I pointed out last week as a possibility and of course then we have commodities. Gold, oil, wheat, whatever, it's all going up and breaking highs. It has something to do with the dollar but really it looks like China is the main culprit as its inflation rate is officially getting out of control from the report released yesterday. This caused a steep 4.5% drop in the Shanghai index and yet I barely saw this plunge anywhere in the media which is not a good sign. The one article I saw had a broker quoted as saying it was no big deal as the market will come back and hit new highs which is another red flag that this could be something more than a one day decline. Finally, if the market does hold up here and the S&P 500 breaks 1504 before the Fed meeting why would they cut rates with the market near all-time highs. It doesn't make sense and would only cause the animal spirits, carry trade, whatever to go for another ride. Maybe Bernanke wants that rather than the alternative but cutting when the equity market is not really in distress at the moment seems strange. However, if the market tanks in the next 4 trading days that is another story.

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