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Tuesday, March 18, 2008


fed cuts 75 bps to 2.25%

1.15pm -- now for the reaction -- first stab was lower from s&p 1310. it's less than the fed fund futures, which called for a full point.

1.24pm -- a recovery to 1310 -- pushing and shoving! the day high remains 1316. post-cut low around 1305.

1.27pm -- the reaction to the news is always more important than the news itself. in this market, earnings from goldman and lehman which amount to ancient history in this environment provided sufficient impetus to spark a 3% rally. yesterday, bears couldn't manage to push the market under in spite of having virtually every excuse. disaster after unfolding disaster has nevertheless seen the january lows held. this seems to my silly and self-serving eyes to be a market that wants to trade higher. it's really just a matter of giving traders the excuse.

in that context, is it really wise to disappoint the fed funds futures? particularly when you just spent the previous weekend doing the regulatory equivalent of running around screaming for help?

1.32pm -- now lower to 1302, a new post-cut low.

1.37pm -- negative real rates got three-quarters of a point more negative for short-term depositors -- but hte initial reaction in the longer-dated market is rising yields, though just a couple ticks on the ten-year from 3.39% pre-cut to 3.41%.

1.40pm -- the dip continues to 1298.

1.52pm -- the first move is always the false one, the old saw goes. from 1298 a pop up to 1305, but will it stick? finishing on or near the highs on a day that saw the market disappointed by a rate cut could be interpreted as a very strong bullish statement.

1.57pm -- and the market is making it -- or at least trying to make it -- a push to new highs in the s&p at 1316!

2.01pm -- ISEE data is notably still bearish today, with puts outnumbering calls 611 to 453 so far. cynicism in the face of a possible bottom is a good contrarian sign.

2.03pm -- now 1318 and rising, with the nasdaq 100 back to its intraday high at 1737.

2.09pm -- i find i'm trying to openly root my still-wet UYG over 30 from its 28.22 buy point... maybe i should consider selling it....

2.12pm -- yield on the long bond is now diving, down to 4.28% after having been as high as 4.36% today. good for the banks, good for inflation expectation, and therefore good for the fed -- if it holds.

2.16pm -- gold (GLD) is tanking post-cut -- down 1.3% from flat at 1.15pm -- and is coming off $30 from the all-time high. but it is interesting to look at the futures chain -- march 2008 delivery is off $5.10 to $996.30 but farther out in time the contracts are up.

2.39pm -- s&p 1323 and on the march. the NDX is now outperforming, up 3.8% versus the s&p 3.6%, which is a good sign and a continuation of a budding trend since late february. generally, NDX outperformance indicates increasing speculative interest.

2.47pm -- more upward pressure as this trend day comes home. NDX now up 4.1%.

3.02pm -- NDX up 4.4% at 1761.05, s&p up 4.2% at 1330.39, both closing on the highs. that was quite a day!

3.11pm -- my lovely UYG finished at 30.86, up 4.34 or 16.4%. THAT is a nice day.

3.22pm -- so what next? if in fact this is enough panic, i'd suggest s&p 1395 has to be busted. there could be a day or two of backing and filling now to consolidate today's move.

4.13pm -- one follow-on -- that was a 90% upside day, which i make to be the second in six sessions. that should augur for higher prices, at minimum a rally to 1395 and i would suggest very likely beyond. IYF should run to 90.78, a further gain of 9.3% (implying about 18% in UYG), though it will have to break the line of declining highs around 85.50 first. but any rally will continue to be reliant on a return of risk appetite in credit, about which more from across the curve. today's curve flattening by big jumps in the 2-year and 5-year yields is sign of that return.


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