Time to Prepare a Buying Plan by Donald H. Rowe (17-OCT-05)
The Wall Street Digest Hotline Update for Friday, October 14
The week of October 10-14 was a terrible week of bad news for the stock market: rising interest rates, rising inflation, rising mortgage rates, rising oil prices, and falling consumer sentiment.
The Good News: Nervous stock traders were able to push the Dow Industrial Average down only 75 points to a low of 10,216 on Thursday, October 13. Record market undervaluation, at 38 percent, is providing support to the market.
More Good News: Fed Chairman Greenspan added $42 billion to the M3 money supply last week to a record high of $10.035 trillion. The Fed has increased M3 by $284.6 billion over the past 12 weeks. Greenspan is obviously pleased that mortgage rates are rising. The 10-year Note touched 4.5 percent yesterday. However, he does not want the housing market or the stock market to melt down on his watch, so he is pumping enormous sums of money (liquidity) into the banking system.
We are close to a bottom and bull market lift-off. We may have seen the final bottom at Dow 10,216. However, the FOMC meets on November 1st and will more than likely raise the Fed funds overnight lending rate to four percent.
Given the sudden rise in inflationary pressures, the Fed will choose to look like responsible inflation hawks and warn of more Fed funds rate increases to come. The Fed will probably raise Fed funds to 4.25 percent at the December FOMC meeting.
Cycle analysis calls for another test of the October 13th market low on November 7-9. A successful test could lead to a bull market lift-off. Consequently, it is time to prepare a buying plan.
This article highlights the commentary of Donald H. Rowe for the Zacks.com audience. Donald H. Rowe provides insightful analysis, market commentary, and favorite recommendations on a timely basis in "The Wall Street Digest" newsletter. Try it free for 30 days and see if you can improve your investment performance. Learn more about "The Wall Street Digest" and 30-Day Free Trial. And get immediate access to current issues and special reports. Click here now.
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