The Federal Reserve cut interest rates by 50 basis points Wednesday. Here was the S&P 500 and the NASDAQ Comp. reaction.
S&P 500 chart
The chart shows the S&P 500 closed lower on the day (after a big rally on the announcement of interest rates) and closed below the opening price on the day on a market at-close sell order of 205 million shares. This indicates what I’ve been saying. The institutions are in hibernation for now.
The chart below shows the NASDAQ Comp. It looks eerily like the S&P 500 but what’s important to note is the last trade of the day. A 336 million market at close sell order.
The last trade of the day accounted for approximately 33% of the total volume for the entire day! This helps confirm my earlier prediction that money will rotate out of the mega caps and into mid/small cap stocks.
The NASDAQ Comp.
What does this all mean in the short term?
It would not be surprising to see some type of short-term rally. I mentioned that in a previous post. Computerized buy signals could trigger if the markets reach new highs. But the end of the day tells the real story of how institutions are behaving. They are rotating to small and mid-cap stocks. The Russell 2000 was up slightly yesterday but its chart looks similar to both the S&P 500 and the NASDAQ. If you’re a day trader, ride the wave. If you are a position trader like me, a better time to buy is right around the corner. I am being patient.
THE FEDERAL RESERVE STATEMENT
Well, the Federal Reserve vindicated me. I have said since July the Fed was behind the curve when he left the rate unchanged. I was pleading for a rate cut in July, and when it didn’t happen, I continued to say he was behind the curve.
When the Fed cut by 50 basis points yesterday, his message seemed to be, “We are determined not to get behind the curve.” Which to me says I should have cut at the July meeting. His statement seemed to be in line with what the market was looking for (more rate cuts this year).
As of today, there is a 50% chance of another 75 basis points being cut by year-end, as the CME Fedwatch chart indicates.
