August 2003
As I write this, the Federal Reserve bank has just announced a 25-basis-point interest rate cut, bringing rates down to a 45-year low of 1%. It was a little less than the 50-point cut I expected, but nevertheless, it was interesting to observe the market's reaction a few minutes before and after the announcement. You could visualize the indecisiveness of the market participants before they settled down during the last hour of trading, which in this case was in the negative direction. What does the 25-basis-point cut mean for the US economy? Although the economy is a little stronger than it was at the end of last year, it's still not strong enough to sustain growth. It's at a very shaky level, one in which the slightest shock could send the economy tumbling into a deflationary period. This is what the Fed is trying to avoid - and for good reason. A deflationary period could result in an economic recession that would be difficult to combat. Fortunately, the possibility of a deflation is rather slim, and the rate cut acts as an added insurance.
The shakiness of the economy is reflected in the equity markets. Although the major equity indexes - the Dow Jones Industrial Average, Standard & Poor's 500 index, and the Nasdaq Composite - have all been rallying since March 2003, they have been bouncing off an upward-sloping trendline, and any negative news can send the indexes below this trendline. Still, it's a rally; and along with that rally, investor sentiment, not surprisingly, is leaning toward bullishness. I've noticed an increase in the number of inquiries related to recommendations for courses or seminars on daytrading, or identifying individuals who have been successful at daytrading. It's amazing how a rally, even a short one, can affect the individual trader or investor.
A rally like the one we recently experienced does open up some avenues for profiting in, not necessarily daytrading, but short-term trading. But this type of trading involves the dedication to create effective trading systems so your quick entries and exits are timed just right. In this issue of Technical Analysis of STOCKS & COMMODITIES,you will find two articles that discuss short-term trading strategies. "Daytrading The E-Mini" by Lawrence Chan shows that by reducing some data, you can boost your trading system performance when trading the e-mini. The other article, "Strategies For Daytrading" by Jacob Singer, shows how you can apply three different trading strategies to intraday trading. When the markets are indecisive, any event, whether small or large, will cause them to move drastically. But with a solid trading system that can weather the turbulence, you should come out with flying colors.
Jayanthi Gopalakrishnan,
Editor
Originally published in the August 2003 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2003, Technical Analysis, Inc.
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