Commentary for January 22, 2008

| January 22, 2008

The US Federal Reserve lowered interest rates by 75 basis points before the market opened this morning in response to the sharp losses experienced across the global equity markets yesterday. The US stock market indices, which had been signaling an open of approximately 4% lower than last Friday’s close, rallied in response after a weak open, resulting in a strong hammer candlestick session as shown below on the Dow Jones Industrial Average daily chart:

A hammer candlestick session of this character, a small body with a long tail beneath, oftentimes signals a short-term inflection point, especially when an index has become oversold as defined by a price oscillator such as RSI. Probabilities therefore suggest there is a very good chance that today will mark at least a short-term bottom. Bear market reactions tend to be fast and furious, especially when they begin at severely oversold levels, so do not be surprised if short-term strength develops during the coming sessions.

Category: Commentary, Market Update

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