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Fed Cut:s and Markets Go Down

The Fed cut 50bps yesterday and the market initially reacted positively, going up over 100 points. Then, S&P came out with downgrades of some financials and the markets turned down.

The chart above (courtesy of Helene Meisler) shows the S&P500 Index. You can clearly see the resistance line that the markets will have to cross before it can move forward in a sustained manner.

Generally, when we get a big downward move like we did in January, you have a bounce back rally. That rally is followed by a retest of the lows (at least once) which shakes out all the weak hands. We are likely going to retest those lows and rally again.

We’ve been selling into this rally and we have a number of Stop Limit order in place. We have also purchased some shares in our favorite sectors and industries given the low prices, and if they go down again (the strong sectors do not always correct in the same manner on the retest, so you have to add to positions when prices are good or you miss opportunities) we’ll add more shares.

A bear market is a tough place. It takes proper execution of a plan to maneuver the ups and downs, and I believe we are doing that. Even in a market where the S&P 500 is down 20% from its high in October, you can take advantage of that by selling lower rated holdings and buying leaders in favored industries so that when they recover you have bought them cheap and are reaping the rewards of being in the market and weathering the storm in the right sectors.

Hang in there – we are in for more of this bumpy ride.

Mark