Fed cuts rate by 0.50

Fed cut the rate by another 0.50 percentage points bringing the target FED funds rate to 3.0. It also signalled that it will keep the door open for further cuts. Stocks first rallied on the news but in the final 30 minutes closed down back to the same level. It shows market has still not decided what it should do. Gold rallied to new highs on the news.

US markets - S&P 500 25 year chart

Here is the S&P 500 chart for the past 25 years. I have also included the famous Black Monday crash of October 1987. The 25 year chart includes the financial crisis, recession, gulf wars etc. Do you see how the market ALWAYS bounces off the 50 EMA. The only time it didn't do this was during the Nasdaq bubble burst of 2000.

Last week we touched the 50 EMA on the S&P chart.
You should bet further downside in the market only if you expect that this time is more worse than 1987 and 1990s problems we had. If you don't think this time is as bad, then you should be buying stocks for the long term. Markets are as SIMPLE as that. We make it so complicated.
Good Luck !!!

Stock market indices print bearish engulfing candle

Bearish engulfing candle printed on all market indices. Watch how Friday's candle totally engulfs Thursday's white candle. This is a bearish setup which will display further weakness in the short-term. Watch for support at Fibonacci 61.8% retracement. I have initiated shorts in MELI and MOS on Friday to take advantage of this weakness.

From the long-term perspective, the weekly chart still holds well and the turnaround bounce should also hold well this week.

We have many economic news and Fed meeting this week. So more volatility. Good Luck !!

Monthly chart of Nasdaq

The monthly chart of Nasadaq clearly shows that we are getting a bounce of this multi-year chart. Normally a multi-year chart support is never broken that easily. They created a nice panic this morning by taking out yesterday's low and it seemed they were going to break this support. That is exactly what I wanted to see and what I was waiting for the past two weeks. I now need a confirmation tomorrow. Time to aggressively buy stocks!!!
Good stocks: MA, BX, BOOM, XLF
Good Luck !!

Soros Sees End of Dollar as World's Reserve Currency

Posted on Bloomberg:

Jan. 23 (Bloomberg) -- Billionaire investor George Soros said the fallout from the U.S. subprime crisis will bring about the end of the dollar's status as the world's reserve currency.

``The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency,'' Soros said in a debate today at the World Economic Forum in Davos, Switzerland. ``Now the rest of the world is increasingly unwilling to accumulate dollars.''

The dollar's share of global foreign-exchange reserves fell to a record low of 63.8 percent in the third quarter as demand for U.S. assets waned after the collapse of the U.S. housing market, according to International Monetary Fund data. It accounted for 65 percent three months earlier. The euro's share rose to 26.4 percent from 25.5 percent. IMF quarterly figures go back to 1999, the year the euro was introduced.

The U.S. currency has dropped 11 percent against the euro and 13 percent against the yen in the past year. It has declined in five of the past six years.

Soros made $1 billion in 1992 betting against the pound, forcing the British government to abandon a peg to a basket of European currencies. He was also the biggest financial backer of the failed effort to deny President George W. Bush a second term in office. The euro has gained 55 percent against the dollar since Bush entered the White House on Jan. 21, 2001.

`Gone Too Far'

``From the 1980s we had the belief in the magic of the marketplace, and the authorities were so successful that they started to believe in this market fundamentalism,'' he said. ``That's gone too far.'' In times of crisis, ``they suspended the rules and they bailed out the banks. That created an asymmetric incentive system, a moral hazard, that allowed the expansion of credit.''

Rising defaults on U.S. subprime mortgages sparked a rout in the credit markets in August, leading banks to cut money for consumer lending, hurting the U.S. economy's main engine. The Fed yesterday lowered its benchmark rate in an emergency move for the first time since 2001 after stock markets tumbled from Hong Kong to London amid signs the world's largest economy is sliding into recession.

Soros has used past appearances in Davos to predict the dollar's decline. In January 2004, he said the U.S. currency would drop for a third year. It then fell 7 percent, according to a Federal Reserve trade-weighted index of the currency.

Stephen Roach, chairman of Morgan Stanley in Asia, said in Davos that while he remains a ``dollar bear,'' the U.S. currency's slide may be reversed in the first half of this year as other economies in Asia and Europe are hurt by the U.S. slowdown.

Tobias Levkovich cuts 2008 targets

Citigroup chief US equity strategist Tobias Levkovich cut his prior forecasts for the S&P 500 to 1550. His earlier target was 1675. Last week he mentioned that he didn't analytical basis for changing his target. I guess the world market turmoil and the past two days action in US markets would have changed his views.
Soon we will hear many other target cuts from other prominent strategists.
Note that a cut in targets for 2008 would be issued if earnings of the companies are expected to decline in 2008.

Fed makes an emergency rate cut of 0.75

The market was expecting a cut of 1% but FED responded back with 0.75. The move was prompted by market selloffs around the world. The market has recovered from the 400 point drop in Dow to now about 180 points.
The best benefit is seen in all financial stocks especially Financial sector ETF XLF.