The First Signs of A Fed Fade

By Dr. Duru written for One-Twenty

September 20, 2007

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I am looking everywhere for signs that the market will fade the Fed again. TraderMike (welcome back!) notes the potential for a double-top in the QQQQ and the potential for bearish evening star patterns if selling resumes for Thursday's trading. But what I find most intriguing is the behavior of the brokerage stocks as the companies post earnings this week.

Morgan Stanley (MS) received a modest 2-point boost after the Fed dropped rates on Tuesday, and it promptly stalled there. After reporting disappointing earnings Wednesday morning, the stock hung around waiting for the conference call. Once the conference call began, the stock promptly gave back its two-point gift from the Fed.

Morgan Stanley daily

The stock's up-trend from the August lows is still well-intact, but of the other brokers in focus - LEH, BSC, and GS - only GS maintained a decent up day. BSC even ended a full 3% down on the day. I strongly suspect that where the brokers go, so to goes the market. So, I will continue to watch the action here like a hawk.

Finally, continuing from the theme of the previous day with LEH's earnings report, word from the street continues to indicate that all is essentially fine. This time, MS incoming CFO went so far as to say that the "...worst of credit crisis is over...sees credit markets working through crisis fallout over next 1-2 quarters." Additionally, execs told analysts that "...yesterday's Fed action was welcome, but was a first step...the market is still in a period of dislocation, and [we] think there will be very good opportunities to deploy capital going forward, and [we] are cautiously optimistic. These are very early days, but there will be opportunities..." (all reported by

GS and BSC are up next!

Be careful out there!

DR. DURU®, 2007