Dec 10, 2007

Bernie Schaeffer: "If the Fed does the right thing, we could see a huge year-end rally"

The backdrop has been fairly rocky on a fundamental basis, but technical levels of support combined with a backdrop of heavy skepticism and a large "short trade" have helped the market stay afloat. For example, ahead of this latest bounce higher, the financial media was wrought with pessimism. In the last two weeks, there have been extremely negative headline articles published in The Financial Times, The Wall Street Journal, Barron's, and Fortune. So unlike the dangerous market days of 2000, the current environment is chugging along fueled by a healthy level of fear. But I maintain – and I can't stress this enough – that the Fed is the real wild card here, and a rate cut is imperative to keep this market on steady footing. If the Fed does the right thing, we could see a huge year-end rally fueled by the covering of massive short and put positions and a buying panic by hedge funds desperate to keep up with the S&P.

~ Bernie Schaeffer, Schaeffer's Monday Morning Outlook, December 10, 2007

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