Thursday, October 30, 2008

Fed cuts key interest rate to 1%

Yup, the US Feds have done it again. They have cut the key interest rate by 0.5% to the present 1%. It was 5.25 % not too long ago.

This could be the reason why the market rallied yesterday, and MAYBE for the next few days.

But from experience, usually after this minor rally, the stock markets will still continue to fall. As fundamentals in the economy has not changed yet. Like I said, it will take at least half a year for such rate cuts to be felt through the it means that the past few rate cuts have not been helping much ( signaling that a real problem is in the economy and has not been solved yet).

Trade with caution, do NOT be lured into this minor rally...but then again, the final decision is yours..personally i would think this would be a good time to start shorting ( but would need to look at the charts before deciding, been busy lately, so the charts have to wait..)

*Disclaimer : What ever appears on the blog is for your own reference only. It is not an investment/trading advice. It is always best to consult your personal financial adviser before parting with your money.


Anonymous said...

I am a Singaporean currently working in the finance sector in US.

I think any attempts made to determine markets movement post rate-cuts is unneccessary and futile. We should instead focus on what, if any, changes to the fundamental issues that causes the crisis.

And simply, the crisis here is one of credit, stemming from liquidity and confidence issues.

The current rate cut will not help much in terms of liquidity. The various bailout programs are already taking care of that. The closer the rates are to zero, the less effective it is. Even with 0% interest rates a la Japan I doubt will have much effect on the matter.

Instead, the move is one of confidence, similiar in intentions to the coordinated global rate cuts earlier this month. By encouraging banks to start borrowing and lending again will the pain be reduced. And there will be pain.

ntuchartist said...

Hi, thanks for your insight!

Personally i think the fundamental improvements will be the way to push the economy in the right direction. However how well the fundamental issues are improving, we cannot tell in this moment in time.

I agree the rate cuts is a way to boost confidence, for the short term, and hopefully the long term. However I feel that this confidence will remain only when next quarter earnings justifies this confidence.

On the technical analysis (TA) side, it seems that the downtrend still looks rather strong. Without any prevailing fundamental changes, TA might still give the market a general direction.