Well, the expected happened, didn't it. But, it happened in SPADES, as the Las Vegas crowd would say! Most of the market expected a one-quarter point move by the FOMC on Tuesday, but it got a full half point reduction in interest rates!
And to top off that cake, they added a dollop of ice cream and reduced the discount rate even further, too! WOW!!
I don't' know if most of you watch the actual "moments of truth" on your computer screen charts or not — I refer to the actual first minute after big economic announcements are made public — but I was watching as the FOMC made their announcement on September 18, and it was incredible — again!!
It took about five seconds for the stupendous news to sink in, and then my computer froze solid. By that, I mean that the stream of data was so huge from Buy orders that even my dual CPU, high speed data card and super high speed data feed were just overwhelmed by it! It stayed "frozen" for over two minutes.
Of course, the resulting chart when it did show up, showed that the 20 seconds after the first five seconds of disbelief, popped the S&P price straight up by an incredible 31 points!!
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Granted that is a poor second to the 72 point pop several weeks ago on Friday, August 17, 2007 at 8:15 a.m. in the morning (even before the regular markets opened) when the Fed lowered the discount rate. But, in this time of incredible happenings, 31 points is still really a BUNCH!!
[Editor's Note: Buffett Says This Book Made Him Billions]
OK, so much for the fun description of the events of the week. But NOW, "just where does all this leave us?" Well, the answer to that comes first from the charts and second from some of my own conjecture. So, let's start with the charts.
Below is the daily Dow chart that will help us better visualize what the charts did with the FOMC news. And believe me, it is all GOOD!
I last gave you this chart with my June 7th column. The column was about how poorly I felt Morgan Stanley handled their Sell prediction, a prediction I didn't disagree with but just felt was very poorly done. In that column I said, as if I were issuing a Sell Warning like the one Morgan Stanley had just issued:
"Whitmore Warns Of Possible Market Correction Today: Max Whitmore issued a warning to investors that his charts indicate a possible market correction. He estimates that the correction could be as little as 3.5 percent (to the area around Dow 13,110 — see First Defense Line on chart below) and to as much as 6 percent (to around the Dow 12,780 area — see high price in 2007 First Qtr at this price).
He estimates that these two levels will hold the correction, but adds that if they don't, the 12100 area (see Super Chart Keyline on the chart below), a correction of about 10 percent, should hold. If this support breaks we could then be entering a possible major market turnaround.
But, at this point in time, this last possibility is less that one out of 10, a rather low possibility for any major market turnaround scenario. Below is the Whitmore Daily Dow Jones Super Chart showing the current Dow chart since early 2006 and lines on the chart to indicate the support levels mentioned above which Whitmore feels might possibly be tested if the possible correction occurs."
Note that on August 16, we did drop to hit the Second Major Support on a close at Dow 12,781. (During that day, we did touch Dow 12,500, a line I felt would be the absolute low — and I believe time will so prove it to be.) That second major support held, assisted, of course, by the Fed announcing a one-half point reduction in the discount rate.
My column the next week was a BUY-BUY-BUY-BUY recommendation. I said that I felt the low "was in" — meaning that we would not go below that level, at least not in the next three-to-five months, as I read the charts. To me, at that point (Dow about 13,200), this market was clearly a BUY! On September 19, the Dow was sitting at 13,740, over 500 points higher. And folks, I believe this is just the start!
But back to the chart. Note that I have drawn a heavy horizontal line at the Dow 13,671 level (see the price at the far left). Then note that I have drawn in a circle in two places at the far right. The lower circle shows that the price in the recent eight-to-10 days closed ABOVE my "First Defense Keyline." As we rallied up from the 12,781 low, that was the first indication to me that something was clearly about to happen, something good if you are a buyer!
Typically, after a decline as big as the one we just experienced, that First Defense Keyline holds price closes BELOW it. Not this time.
Now look at the higher circle. Note that the close on September 18 was ABOVE that Dow 13,671 line. That Dow 13,761 level represented a MAJOR resistance to prices. It was cleanly cut to the upside by the FOMC action like a hot knife cuts through butter!
Now, look at the bottom of the chart. Note the yellow line on this lower portion of the chart. This is what is called a "momentum indicator." It is a little like a rubber ball bouncing after you throw it high in the air. Each bounce rises just a little lower. This momentum indicator is something like that. Each rally to higher prices tends to be just a little less robust than the previous rally, especially after the indicator reading reaches the 75-80 level. In this case, the momentum indicator is, to my eye, clearly laboring a bit (it is at the 87.35 level now).
What does this mean for us? Simply, it means that we can very likely expect that while we may challenge the Dow 14,000 level, we may see the chart climb, pause and "regroup," as I call it. I expect that as we near the Dow 14,000 level, investors will go to the sidelines and wait to see what effect the Fed action will really have on the economy. I expect that it could easily take three-to-five weeks for big investors' minds to get the sense of coming events and begin to place their bets.
But, once the yellow momentum line drops back down to the 50 area on the momentum gauge, I will begin to look for the next rally to start gathering strength and resume its march, with the highly determined goal of making NEW HIGHS. Of course, that is assuming that the analysis by the investors sees good results starting to emerge from the Fed actions. Well, so much for the chart.
[Editor's Note:Will the Liquidity Crisis Sink Your Stocks? 12 Ways to Profit.]
OK, OK, I see all of you detractors out there wagging your fingers at me and saying something like: "But, what your chart says means BIG inflation and the dollar is going to tank, and this is the worst of both worlds!"
Fair enough. So, here let's go to the second part of this column, the part where I stick out my neck as fair game for the chopping block and give you some of my conjectures for the future.
But, as you sharpen your axes, let me say in my own defense I have been in this business a long time. I have been wrong now and then, true, but I look to the future with a trained and experienced eye. I look at all the possibilities, those sane and those a bit "out there" and, then, come to my own conclusions. And if I do prove to be wrong, my SUPER CHART has always been there for the last 30-plus years to tell me well ahead of time and big damage so that I can take corrective action. Can't ask for much more than that from it can I.
So, here is where I hang my hat today. Let's remember to look back at this column some months down the road and see if I nailed it or blew it.
First Prediction:
The inflation rate will NOT get out of control. I am expecting that several of the key items of inflation will moderate, especially food and energy. How can I say that?
One thing I have never been let down by is the ingenuity of the American business community. This collection of mini- and maxi- businesses knows what opportunity is! When prices go nuts — and the government is not controlling the game — they find ways to serve their markets at better prices to gain a large share of their market sector. It may mean building new plants and buying new equipment, or even working over time in R&D, but they find ways to get prices down.
I expect that the food industry and oil industry are not excluded from this phenomenon.
Look for oil to moderate as adjustments instituted months ago begin to come on stream. And look for food prices to moderate, too, for the same reason. One thing prices don't do is run so high that no one can afford to buy the goods and services these businesses have for sale. I believe that will prove to be true in this case. Don't ever sell these business types short!
Second Prediction:
I believe that the lower interest rate framework will not be just a U.S. phenomenon. I believe that rates around the world will moderate and that the dollar, relative to other interest rates and currencies, will not suffer much at all.
Yes, that means that I believe that the huge bets made by some big investors for a giant decline in the dollar, the ruinous kind of decline, will just NOT happen. Lower, maybe, but not ruinous. I expect that the lower prices of our goods in the world's market place (to say nothing of our superior quality of goods) will in fact help our economy speed up its growth rate as we begin to emerge as a huge, major supplier of goods and services to the world.
Our quality, the honesty of our system of business operations and our respect for law are highly respected in the day-to-day world of business, regardless of the naysayers saying otherwise. The world may disagree with us on lots of things, but when it comes to the pocketbook, quality and reliability, they chose the best price and highest quality from the best and most reliable supplier. That's us, hands down.
Last Prediction:
I expect that we will break above the Dow 14,000 level and by late next spring or early summer be above the Dow 15,000 level, possibly even as high as Dow 15,350 or more. Now, that is a long way out in time, but it is at the very leading edge of what the chart is telling me is possible. And, so long as the chart holds, within the next 5-8 months, that is the possibility it predicts. I rate it as a 6.5 to 7 on my scale of 1-10.
So, that pretty much puts it on the line doesn't it. I will either be a dunce or a hero, as they say. But, from my chair, that is the way I see it today. And yes, guaranteed, I will be closely watching my SUPER CHART KEYLINE and reporting to you on its progress to be sure the predictions continue on track (today it is at Dow 12,721).
But, if the KEYLINE gets seriously threatened or is broken to the downside, I want it understood that all bets are off and we will be talking a very different scenario. A field general changes his tactics if the battle plan encounters the unexpected. If he doesn't adjust, he will likely lose the battle. I don't like to lose battles.
Well, that's it for today. I covered a lot of ground, I know, but as the old time comedian Judy Canova liked to say, "I said it and I'm glad!" We'll see how it all washes in due time.
For now, hope your coming investing week is a good one. In the meantime, you keep in touch. I do! See you next week.
Editor's note:
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Big Government Lies Exposed. Go Here Now.
Will the Liquidity Crisis Sink Your Stocks? 12 Ways to Profit.
Buffett Says This Book Made Him Billions
