QE2 noise..
Tuesday, August 10, 2010 at 07:00AM Last 24 hrs, all the talk has centered around the importance of tomorrow’s FOMC and the subject of QE2 and yes, the camps are quite spilt as to what the FED should or needs to do. It even gets more spilt as to effect of opening door to QE2 would have on the market direction. Last week, we noted this story, http://online.wsj.com/article/SB10001424052748704271804575405113846708620.html and that it may affect market negatively, which id did to start the trading day. Since the story ran the market was supposedly focused on NFP#, but we said the market might be looking ahead to FOMC instead by last Thursday. The market has moved nowhere indicating eyes/ money were on FOMC. Well, now we’re almost here and everyone is treating this as critical as NFP#. Guess what?.. By end of day, this FOMC will most likely pass as a whisper to the market as did NFP#. The story above and the potential incremental steps by FOMC have lost steamed, most notably because of the NFP#, even though not indicating recovery strength was also not bad enough for FOMC policy change. Those wanting FED to take imminent steps will likely be disappointed, but it’s doubtful it’s enough reason to sell off the market, we think QE2 steps would likely do more damage. Hope here and expectation is FED stays ‘very accommodative’ long term as Bernanke signalled recently. We will get a ‘downgrade’ on economy, but that is priced in.
As far as trade today, besides the GEOY/DGI early morning alert…summer dullness’ really set in today with volumes way below average. Once we get through FOMC, heads will turn to CSCO earnings and more importantly CEO’s comments to see how things are looking forward. CSCO is important because it’s the first real JULY end report, not June end. Overall for Nasdaq/tech, the concern here is still the SMH as noted to start the month..."and Semi’s down >4% this week, signs of technology softening demand is showing up globally (possible correction in technology coming). Since, SMH has done nothing the change this view. Sooner or later, the market may not like more talk of demand softening coming.