All Eyes on Ben

2:15 Eastern Time Will be Key

By Bryan Bottarelli
Tuesday, September 18, 2007 10:36 AM EDT
Tue, 18 Sep 2007 14:36:00 GMT

Dear Bottarelli Research Member,

The smartest trading plan this morning to stand pat leading into the Fed’s interest rate decision at 2:15 Eastern time. As you know, it’s widely expected that the Federal Reserve will initiate their first rate cut in over four years — but what’ll be most critical is the magnitude of the cut (25 or 50 basis points) and the market’s reaction to the cut. As you can see from the chart below, the last three days have seen the Dow hovering right around its 50-day moving average, which leads me to believe that traders are waiting on the Fed to make their next major directional play.

INDU

Leading up to this afternoon’s announcement, Lehman Brothers (LEH — NYSE) kicked off the major broker earnings by reporting $887 million ($1.54 a share) compared to $916 million ($1.57 a share) one year ago. Although this number came in less than last year, it did beat the Thomson First Call estimate of $1.47 a share — and this pushed Lehman shares up 4% in pre-market activity. But as the trading day got started, LEH has given up most of these pre-market gains (noted by the black candlestick formation below) which means that this afternoon’s Fed announcement will be even more important for extended upside momentum.

LEH

As I noted yesterday, we could have a possible play on Goldman Sachs (GS – NYSE) leading into their Thursday earnings announcement, so let’s certainly keep our eyes on them for a forward directional signal as well.

GS

Also looking to break through its $90.00 ceiling is Potash of Saskatchewan (POT – NYSE). The stock should be a beneficiary of the great news out of Monsanto (MON – NYSE) yesterday, so we could have an upside play here as well (depending on the Fed, of course).

POT

And finally, Cummins (CMI — NYSE) is threatening to take out their last high just above $125.00. If this occurs, CMI could really push higher, so I’ll be watching that situation as well.

CMI

Also noteworthy is Nike (NKE – NYSE), which reports earnings after the close on Thursday. If they come in with a strong number, this could offer a boost to our Under Armour (UA – NYSE) call position.

So as you can see, we have a number of great trading opportunities — and as soon as the Fed triggers the market’s directional bias, we’ll be off to the races. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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