So Who's Right?

So who's right? The stock market or the Fed? The Fed cut rates by 50 bps yesterday due to concerns the recent credit crunch would adversly impact the real economy, and the stock market jumps over 2%. Does the stock market think that easy money is about to return? Or that inflation will be good for firm's pricing power? Or was it just caught up in the moment, and reality will soon bring it back to earth?

Either way, my upward bound for the TSX was breached yesterday, so I must seriously consider reducing my short position. However, as I have been burned many times entering and liquidating positions near turning points, I plan to wait until at least one hour after the open today to decide. Housing starts this morning were down more than estimates, and Morgan Stanley reported a 17% fall in earnings due to the credit crunch. Maybe these might remind investors what's really going on.

I also wish to establish an initial position in gold through HGU. Gold has gained strongly since I first mentioned it about a week ago. If the stock is up strongly more than one hour into trading, I will probably take a small position. I am slightly concerned about a small correction after the large gains of the past month, so I plan to enter this trade gradually.

MARKET POSITION: SHORT (4 units)