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DOW + 138 on 1500 net advances
NASDAQ COMP. + 42 on 900 net advances
SHORT TERM TREND Bullish
INTERMEDIATE TERM TREND Bullish
The Dow was up about 80 when the Fed announcement came. It immediately dropped a quick 90 points to be down 10, but after thinking about it some more, managed a rally to the highs of the session. And what was the announcement? A quarter point drop in the Fed funds rate and a quarter point for the discount rate. The first was expected. The latter wasn’t.
What caused the initial selling was the fact that the vote was not unanimous and the wording cast doubt on further rate cuts. However, the cut caused another drop in the greenback and this generated buying in stocks that benefit from a weaker dollar such as metal stocks and high techs. Interestingly the cuts have done very little for the financials and the home builders, the companies that the Fed wants most to help.
Regarding Thursday, it’s the first day of the month and this has a tendency to be higher, but the Composite Gauge rang up a 4 on Wednesday suggesting a very short term overbought condition. Conflicting indicators.
Speaking of weak dollar beneficiaries, the chart below shows the weekly NASDAQ Composite. The up arrows show when 5 week RSI goes below 30 and turns up. The down arrows show when the same indicator goes above 80 and turns down. Clearly, buy signals are more effective than sell signals. The chart shows a solid uptrend that is making a pattern of ascending highs and ascending lows.
Gold and oil managed to shake off yesterday’s decline and make new highs. Gold was helped by the weak dollar. Oil inventories were reported to be the lowest in two years. Bonds were hit pretty hard. This will move us to the bearish camp since it moved below a previous low on the daily charts.
NEWS AND FUNDAMENTALS:
Third quarter GDP rose 3.9%. The expectation was for a rise of 3.1%. The employment cost index came in at 0.8%. This was lower than the consensus rise of 0.9%. Chicago PMI was 49.7. The consensus expected 53.0. On Thursday we get another data dump including jobless claims, Consumer spending, the core PCE price index and the national ISM number
BOTTOM LINE:
Our intermediate term systems are on a buy signal. Mutual fund investors are in 100% invested position. ETF investors are long the S&P 500 ETF, symbol SPY from 153.32.
Short term ETF traders should stay in cash.
OTHER MARKETS
We are moving to a sell for bonds as of today October 31.
We are on a sell for the dollar and a buy for the Euro as of October 18.
We are on a buy for gold as of September 18.
We are on a buy signal for crude oil as of October 12.
We are long term bullish for all major world markets, including those of the U.S., Britain, Canada, Germany, France and Japan.
STEPHEN TODD
A SHORT BIOGRAPHY
Editor and publisher of the Todd Market Forecast, a monthly stock market newsletter with an included nightly hotline.
Steve has published articles on the stock market in the following publications: Barron’s, Stock Market Magazine, Futures Magazine, The National Educator, and others.
His stock market commentary is heard on the following stations: CNBC, Bloomberg, CNNfn, Associated Press Radio, Business Radio Network, CKNW in Vancouver, British Columbia, KFWB, Los Angeles and ROBTV in Toronto, Ontario.
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