Timing Market Turns - FOMC Cuts Discount Rate

0900 EDT

We will enter 75 % long Swing positions in Dow, NDX, SPX and RUT. Stops for today's closing should be in the daily spread on Wednesday, preferably the highs on Wednesday.

This trade may only last until closing as today's action depends on the return traders to some level of "belief in the markets". Initial opening stops for first 90 minutes is yesterday's 1512 EDT low.

Cover long Treasury positions.

WBB


0825 EDT

We will update before the opening after we observe the reaction's aftermath.

As we have thought, the 1998 pattern appears broken or significantly shortened.

The FOMC's action is unusual since it is the Discount Rate that was cut and may have more bearish implications for stocks over coming weeks. It is bullish for today and likely into Monday.

We will update by 0915 EDT.

WBB


TWO MESSAGES FROM THE FOMC THIS MORNING AT 0820 EDT

For immediate release

Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward.

In these circumstances, although recent data suggest that the economy has continued to expand at a moderate pace, the Federal Open Market Committee judges that the downside risks to growth have increased appreciably.

The Committee is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.

Voting in favor of the policy announcement were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Richard W. Fisher; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Michael H. Moskow; Eric Rosengren; and Kevin M. Warsh.



For immediate release

To promote the restoration of orderly conditions in financial markets, the Federal Reserve Board approved temporary changes to its primary credit discount window facility.

The Board approved a 50 basis point reduction in the primary credit rate to 5-3/4 percent, to narrow the spread between the primary credit rate and the Federal Open Market Committee's target federal funds rate to 50 basis points.

The Board is also announcing a change to the Reserve Banks' usual practices to allow the provision of term financing for as long as 30 days, renewable by the borrower. These changes will remain in place until the Federal Reserve determines that market liquidity has improved materially.

These changes are designed to provide depositories with greater assurance about the cost and availability of funding. The Federal Reserve will continue to accept a broad range of collateral for discount window loans, including home mortgages and related assets. Existing collateral margins will be maintained.

In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York and San Francisco.

Timing Market Turns 08/15/2007

Timing Market Turns

We are still in cash since August 10th.

You may wonder why we haven't entered short.

First, it's expiration week in a perceived crisis for credit availability, with a week full of economic data.

Second, since the August 6th morning low we have two and a half days upward with a spike closing on August 8th (no trend). Then one down day followed by a spike down opening on the 10th that ended higher followed by two days down.

We expect an eventual retrace attempt but it is not a required action. In times like this, a patient swing trader and a cool headed investor takes an action that reflects their trading plan. We may miss a few quick trades but as we have stated for a few weeks 3-5 day swings had become shorter and more difficult to trade or cover risk for a long term portfolio.

The SPX is quite close to its overflow point at 1363. This is our structural level for the onsetting of a long term bear market. Closing below that level for more than 1 day will bring out the need to re-evaluate any structural phasing counts. It will also mean an entirely new trading structural plan, and also a revised investment devices to re-focus capital preservation for investors.
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The downward move has persisted through many intraday and daily buy signals. The Fed continues to attempt to add liquidity. We believe that it may be making matters worse for all stocks, instead of just the mortgage lenders and the bankers who fund them, and the private capital hedge funds who are leveraged on the same failing computer models that are now all converging simultaneously.

Bad lending practices usually grow bad loans, which result in additional lending to the bad borrower. Then comes the non-performing part of the story by borrowers and the resulting matrix of derivatives dissolve. That's all we are going through so far.

"Cash is king" is not a fable, it is so true at times like this.

Unpopular words, perhaps - but people want to know what is really happening.

I was scared in the 1974 drop, but not since then. Not in 1987 or 2000.

Even if this does not become a Bear market, and remains just a correction, the future finger pointing at causes will be useless. We know the cause, it's a correction.

Finger pointing is for the vain; the vain who never saw it coming and still don't understand it. Who? Politicians. They will be ready to legislate a solution to a non-existent problem in a few months.

The recent SEC removal of the uptick rule (10a-1), in place since 1934, is not the cause of this decline. This is the 4th or 5th longest bull market in history, so far!

Bull markets have corrections, then they turn upwards and get going all over again. If the uptick rule has any influence, it will make the correction far shorter but just as deep as it should be. There's nothing new under the sun or in the markets.

The simple existence of the TimerTrac service is evidence that markets go up and then they go downward. This is not 1929, but it does still look a wee bit like 1998. The Fed liquidity injections are potentially disrupting the pattern.

We have our Time Locus Points listed for this correction into October, and our "start the bear market" levels ( in previous post ). We do not believe that more than one of the indexes will reach those levels and only intraday. A closing below those levels will jeopardize our "Continuous Bull' outlook for the months ahead.

We hope they help you.

These turning point dates are objective and without bias for direction. Our comments about the Time Loci dates reflect what our models produce and how we interpret same. The dates have an abnormal accuracy.

We will update our comments here at least weekly, during this correction. Or you may join our mailing list.

W. B. Busin
W. B. Busin Group Publishing
http://www.market-timing-wbbusin.com