Friendly Fed :-)

Wed. Mar. 21, 2007

We have another fundamental shift. The Fed has gone from the angry ogre lofting rates higher to curtail runaway inflation to a guardian angel providing liquidity in the markets if the housing woes continue. With their Fedspeak they are telling us today that they will cut rates if necessary. One sure way to interpret their lingo is by looking at the markets, the S&P's are up 17 points as I am writing this, led by the financial sector. They are basically telling us, " rate cuts are ahead guys don't worry, buy stocks, be happy". The Fed is creating increased volatility here through a basically knee jerk reaction to the recent correction. That is good for traders and we really need to be aware of our technical levels and trends to capitalize on trend trades. Lets pay close attention to the Fed Governors speaking this week. Every time they speak we should be making money. Why? Because we know that currently, when the market reacts to them we will trend.

We are seeing a rally in Bonds as Stocks move higher. This may seem strange to some. The reason for this is, as the Fed cuts rates Bonds must rally because Bonds move in the opposite direction of interest rates, that is simply how the contracts are constructed, and lower interest rates are good for Stocks, so Stocks rally as well.

Shadowtrader's Fear Factor = 0
1. Obvious Reasons!

Shadowtrader's Goldilocks Economy Indicator = 10
1. Friendly Fed
2. Ben S. Bernanke and Mr. Rogers never seen in the same place at the same time.
3. Foreclosures, Fiveclosures, Sixclosures...Who cares!