![]() Thus, if the Fed indeed decides to cut rates we can all be sure the market long ago adjusted to this, and we can expect no major changes in the market's course based on any such announcement by the Fed. The stock market is the closest thing we have to a crystal ball as it foresees and discounts nearly all future events ahead of time and makes adjustments in stock prices accordingly. More recently, Greenspan's comments hinting at a possible interest rate cut elicited a euphoric surge in most global stock market indices, but the next day markets here and overseas continued their falling trend).Īll of this plays off a little-known but extremely useful truism-news does not effect the stock market for any length of time because by the time the "news" becomes common knowledge it is no longer new. (The most notable example of this was Greenspan's infamous "irrational exuberance" comment in December 1996, which caused the Dow to plummet for the day, but it recovered the next day. On every occasion Greenspan has proffered his opinion on the state of the economy or the stock market, the effects have rarely been for more than one day. This is the way it is with any Fed announcement. Investors may react immediately to the Fed's interest rate announcement (whatever it may be) and stocks may react positively or negatively-perhaps even violently-but the impact will last for only one-to-two days. However, even if rates are cut this will have NO, repeat, NO lasting impact on the stock market. In fact, most economists and policy experts close to the Fed have intimated that the Fed will not cut them (many, in fact, have advised the Fed not to cut rates). Contrary to mass media speculation, Chairman Greenspan, in our view, has given no such "strong indication" that he will cut short-term rates. Speaking of interest rates, it is our fervent belief that interest rates will NOT be cut this time by the Fed (though it is a possibility). 29, but it is not out of the question and from a technical standpoint should be given preeminence as the most likely scenario. Admittedly, this is a bold assumption in light of Federal Reserve Chairman Greenspan's coming interest rate announcement on Sept. Nevertheless, prices have worked their way toward the tip, or apex, of the wedge and should commence falling toward our cited Gann support level of DJ 6975 this week, possibly even on Monday the 28th. ![]() 24 didn't quite measure up to expectations in the way of severity). We accurately predicted last week that a touch of its trendline top at approximately DJ 8175 would send the Dow plummeting quickly and sharply downward (though the Dow's fall of Thursday, Sept. Our ascending wedge quite clearly appears on the verge of exhaustion, and it may have already peaked. ![]() In this case, we would expect that change to be to the downside. Note our accompanying candlestick chart which shows several "dojis" and "spinning tops," candlestick formations which reflect trader indecision and usually harbinger abrupt changes in the market's near-term course. Yet another ascending wedge pattern presents itself in the S&P 500 futures chart (basis December). And, as investors around the country will shortly discover, ascending wedges do not bode well for the health of the stock market. Cycles, momentum indicators, oscillators, moving averages,Įlliott Waves, Fibonacci ratios-all of these, while important in their own right, can effectively be ignored in place of this one prominent chart pattern. The extremely important and portentous "ascending wedge" formation we have constantly referred to in the past couple of weeks appears to be nearing its apex, which presages a sharp move to the downside in the Dow Industrials as well as the other major indexes. Thus, it should come as no surprise that we make reference to a geometric technical pattern in this week's headline. Pattern recognition is primary, timing is concomitant to this. It has often been stated that "timing is everything." Not quite. Instead, we try to present a comprehensive picture of the stock market's near-term trend using the single most valuable element of stock market (or any form of economic) analysis: pattern recognition. Our primary purpose in this exercise is not to tax the reader's mind with excessive technical considerations. ![]() Unlike most stock commentators, our emphasis on salient technical features of stock charts far eclipses any mention we may make of the market's "fundamentals." Long-time readers of this commentary will have noticed the large emphasis we place on geometric patterns formed in the stock charts.
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