By Ted Olshansky
Publish Date: February 2, 2008
Bernanke had to make a call
As stocks continued in a free fall.
Both he and all of his men
Tried to get the economy moving again.
Wow! What a month. With home prices falling, the economy slowing, consumer confidence fading, banks and brokerage houses taking billions of dollars of write offs, the Fed injected liquidity into the system by way of interest rate cuts. These cuts have reduced the Fed funds rate to 3% from 4¼% two weeks ago and 225 basis points from when the Fed began cutting last summer.
Starting the month of January the Dow stood slightly above 13,000. During the decline we reached a low of approximately 11,800 and recovered by the end of the month to 12,743. The last week of January saw the Dow up 4.4%, it’s biggest weekly rise in almost five years.
Remember both indexes and stocks tend to go to extremes. This occurs both on the upside and downside. The reason is many investors panic at the bottom and also at the top in fear of missing the next move up (which often doesn’t occur).
We have had a fair bounce off the lows. We probably will see some more strength in light of the Microsoft tender offer for Yahoo and the recent strength in some of the financials. This should give investors a chance to lighten up and sell some stocks at prices considerably off their lows.
Look for a retest of the January bottom sometime in the next two months. I believe the market will hold this level for two reasons. 1) Valuations are not too high, bear markets don’t start with P/E rations of 15. 2) Interest rates are low and conducive to rising markets.
Bullish Bearish Number: 65
Thought of the day: "Better to sell into strength than wait to get even."