Fed Answers Foreign Meltdown with Rate Cut

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Last week was a lot of the "worst since this and that" etc, as the SPX finished the week at -4.5% to 1325.19, after making a 1312.51 intraday low on Friday. The SPX was -4.6% for the week ending 1/4. There was US recession and global economy slowdown panic talk all week, as well as the Citigroup and Merrill Lynch writedowns and downgrading fear in the bond insurers. The market has lost the leadership of the energy and commodity-related stocks, and of course there was another leg down in the financials. The OIH was -10.3% last week, with the XLE -9.1%, $HUI -8.2%, $BKX -7.8%, $XBD -6.9% and XLB -6.8%. This is no surprise to any of you who have been reading this "rag sheet" about the bear market unfolding since the 10/11/07 1576 top. The SPX is now extended well beyond the 1-year -3.0 Standard Deviation zone, with the percentage of stocks in the SPX above their 50-day MA at only 9%, and just 19% of the stocks above their 200-day moving average. This is versus 13% in March 2003 789 retracement to the 769 10/10/02 bear market low, 9% in 10/02 and 3% in 7/02. Extremely oversold is redundant. There was only a 1-day bounce from the 1378.70 (1/9) low to 1429.09, and then a meltdown last Thursday and Friday after taking out that 1370.68 8/16/07 low.

In the 1/16 commentary, I said that rallies in this bear market will be sharp, but the odds favor a decline to at least the .382 retracement zone at 1268 (1576-769), which is -19.5% from the 1576 high. I also said there must be some overt measures taken to reverse or slow the obvious problems we are facing now that all the sudden reached media and political crisis levels last week, as the Congress and Administration came up with a "political stimulant" package to give away free money to all of us, soon to become socialized masses which will in effect do next to nothing, other than let both parties pander for votes in the 2008 Presidential election.

We got an upclose view on Monday (1/21) of how the foreign markets reacted to the US panic last week. There was a foreign market meltdown yesterday, as the MSCI World Index declined the most since 2002, with the Dow Jones STOX 600 Index -5.7%. The US futures posted the biggest drop since 2001, as the SPX emini Globex futures finished at -60 points if my quote vendor is correct. The SPX Equal Weighted Index (RSP) is -20.6% to the 41.85 low on Friday, from the 7/13/07 52.74 high, while the SPX is -16.7% to the 1312.51 low from the 10/11/07 1576 high. The RSP did not confirm the 10/11/07 1576 high, as the leadership had narrowed considerably. The $BKX is -37% from its 2/20/07 top, and the $XBD -37.1% from the 6/1/07 high. Retail peaked on 6/4/07, and the XRT is -36.9% while the semis topped on 7/17/07 and the SMH is -34.2% to its 1/16/07 27.21 low. The IWM and $TRAN are -22.6% and -26.2% from their highs, with the XLY (consumer discretionary) -27.6%.

The SPX futures are -8 points as I complete this at 8:00 AM, and if they hold, there will obviously be a significant discount opening from the previous SPX 1325.19 close, which will set up the initial reversal opportunity for daytraders.

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Have a good trading day and keep your helmet on.
Kevin Haggerty