FOMC Decision Causes Long Squeeze

Talk to me, tell me your name
You blow me off like its' all the same
You lit a fuse, and now I'm ticking away
Like a bomb.... yeah baby
Well if Lady Luck gets on my side
We're gonna rock this town alive
I'll let her rough me up
Til she knocks me out
   Chorus: (Everyone now!)
She bangs, she bangs
Oh baby when she moves, she moves
I go crazy 'cause she looks like a flower
but she stings like a bee
Like every girl in history
--"She Bangs" as performed by Ricky Martin

The market definitely moved in a way that would make Señor Ricky blush. In a stunning move by the Federal Reserve, which NASA experts at the Hubbell Telescope claim was foreseen as far out as the Andromeda Galaxy, the short-term lending rate was cut by an additional 50 basis points today. Although the market got what it wanted, the FOMC clearly stated that they were reacting to a stagnant economy that has been tormented by rising energy prices, declining consumer confidence, and decreasing spending by consumers and businesses.

The central bank stated: "Consumer and business confidence has eroded further, exacerbated by rising energy costs that continue to drain consumer purchasing power and press on business profit margins. Partly as a consequence, retail sales and business spending on capital equipment have weakened appreciably. In response, manufacturing production has been cut back sharply, with new technologies appearing to have accelerated the response of production and demand to potential excesses in the stock of inventories and capital equipment. Taken together, and with inflation contained, these circumstances have called for a rapid and forceful response of monetary policy...the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future."

Statements like these don't make you want to go out and bid up stocks that have already moved 60-80% in the last few weeks, do they?

As a result, the hypesters on television immediately began to focus on the possibilities of another 25-basis-point hike that was rumored as a possibility after yesterday's horrific consumer confidence number. After both the Nasdaq futures and S&P futures reacted to the FOMC decision by rallying to new multi-day highs, the tide quickly turned as a 'long squeeze" ensued that saw the Nasdaq futures implode nearly 145 points from their intraday high.

Late-afternoon trading saw some serious profit-taking in the financial and brokerage sectors that have been on a rampage for the past seven weeks. Technology also saw some intense selling in names like (SDLI | Quote | Chart | News | PowerRating), (CIEN | Quote | Chart | News | PowerRating), (BRCD | Quote | Chart | News | PowerRating), (EMLX | Quote | Chart | News | PowerRating), (CHKP | Quote | Chart | News | PowerRating), (MERQ | Quote | Chart | News | PowerRating), (TIBX | Quote | Chart | News | PowerRating), and the rest of the "fat and bloated" glamours. In light of today's selling, I don't detect a change of bullish sentiment yet. For the time being, it appears the greed cycle is alive and well and will probably power the Nasdaq Composite above the 3,000 level in the days to come.

It is certainly without question that the analyst community is determined on selling the fabled "second half recovery" story to every sidelined dollar that is waiting for a green light to jump back into the market. Once those sidelined dollars are cleverly lured back into technology, we will probably need to get ready for the next leg down in this cyclical bear market.

At present, I am waiting for the selling to abate and an opportunity to take some long positions at decent entry prices. Do your homework tonight and determine where you want to buy the stronger names that may lead the advance back up once it materializes. Let the market come to you, here. Don't feel as though you need to jump in at the first signs of weakness and get long. The market has a lot of soul searching to do in the next 2-3 days and I'm sure the action will be volatile, to say the least.

Short Watch: Brokers like (LEH | Quote | Chart | News | PowerRating), (MER | Quote | Chart | News | PowerRating) and (GS | Quote | Chart | News | PowerRating) may have begun their fall from Grace. The QQQs may need to test 62 and hold to warrant taking longs.

Long Watch: Drug stocks like (MRK | Quote | Chart | News | PowerRating) did very well after the FOMC decision. This may signal a flight to defensive stocks tomorrow.

Either way, don't read too much into what transpired today. The Bulls aren't going to quit this easy. Get ready to play both sides, and trade 'em like you see 'em.