Feds magic

3/11/08

What a day!! Fed injects up to 200 billion in banking system to rescue the credit market. This action ignite the Dow, S&P, Nasdaq all have biggest gain day of the year. Also, worth to say is Japanese central bank may make intervention that not let the USD/JPY currency pair trading below the 8 years low of 101.40 or 100 level since BOJ did that twice for past 10 years period. Today USD/JPY jump big from 101.41 to 103.40(It is very huge move consider the time taken only 12 hours of trading in currency market)So, with Fed and BOJ help, market can perform such mixed short covering, bargain bottom fishing day. Anyway, this is short term bottom for the market for sure. First of all, banking sector index has formed double bottom, financial also form a bullish engulfing Japanese candlestick chart pattern after three black crow down days. Moreover, market breaths(Such as New highs/new lows of NYSE was hitting historical event yesterday) and put/call ratios was close at 1.48 which both mean the very short term bottom is very close. So, both fundamental and technical are shifting upward to make such a huge jump/turnaround day. Next resistance for Dow is around 12200-250.

Well, we are still in Bear market and there are lots of issue to workout before it builds the real bottom. First, Fed injects 200 billion but if banks are not lending much from Fed( Fed did this before since 12/2007 but not too much effect or help the banking system), it makes no real means for banking system or buildup the confidence again on credit market. Also, Fed would not reduce 0.75% that market need on coming Fed meeting(18th of this month) Most likely, they will lower half percent points. Also, with NFP(Non-farm payroll) data suggest US economy is into recession(For last 100 years, whenever NFP posted 2 contraction number in a row it means most likely economy is entering into recession). Let see if Fed magic works or the Bear would come back strong.