Tuesdays Game Plan

The two awful days we have had in the last month have come on Tuesdays, so I am sure in the back of the minds of most traders is the fact that today is, well, Tuesday. It would be a perfect day to buck that downward trend and give us some upside momentum. Housing data is out already and at first glance it was better than the market had expected. Market is trying to find a floor here, and today will help determine if we have found one.

Interesting to note that some Fed watchers are out predicting the Fed will throw the market a bone by backing off their hawkish stance and intimating that the next move might be lower should economic conditions warrant. This is one reason gold is stronger today. At the risk of sounding like a broken record here, the fed needs to drain liquidity, not add more to it. Inflation is and always will be a monetary phenomenon and to cut rates right now would simply exacerbate the liquidity situation and not help the economy in the long term. Expect commodities to do well if the Fed hints at a more dovish stance, but I wouldn't bet money that they do this. In my mind, that is wishful thinking. Expect a hawkish statement.

Having said this, it might make one wonder why I believe stocks will fare well, even though I expect the Fed to raise, not lower interest rates. For all of the "sky is falling" talk on the economy, it remains very robust. Check out Brian Wesbury's article yesterday called the lion that squeaked. http://www.ftportfolios.com/Retail/Research/EconomicResearch.aspx

My plan is still to own stocks I like and buy some protection for exogenous events like a subprime meltdown, which as we now know in hindsight, caught the market by surprise. Even some of the biggest and brightest hedgefunds and banks were pouring money into these subprime firms right up to their dramatic drops. Of course the stories on these have not been completed and these firms may yet come out ahead. My career technologist friend asked me yesterday about bottom fishing in these stocks and I told him that it wasn't for me. When the risk is bankruptcy and equity wipe out as a result, that is not a risk I want to take. Other guys love these situations and have made good money. Not for me.