Monday Morning Outlook: Stocks Struggle as Investors Await Fed Rate Cut

Monday Morning Outlook: Stocks Struggle as Investors Await Fed Rate Cut

Yet, as stocks continue to plunge below long-term support levels (a source of major concern) and the bond market continues to discount aggressive cuts in the Fed Funds rate, Ben Bernanke's helicopter remains grounded. His words suggest the Fed will do what needs to be done, but his actions (or lack thereof) continue to suggest inflation and a weaker dollar are a worry. Therefore, we continue to see the Fed as a major wild card here. Aggressive rate cuts are needed sooner rather than later, especially with S&P futures indicated significantly lower as of Monday afternoon and the yield on the two-year note sitting at 2.34 percent as of Friday's close. And if the market doesn't get these aggressive rate cuts, unfortunately, we can expect to see more the same.

As I alluded to above, the major market indices have broken below several key support levels. The Dow Jones has shed nearly nine percent since the start of 2008 and has closed the past two weeks below key support at its 80-week moving average. Furthermore, the Dow has fallen below its 20-month trendline. It has not closed below this trendline since June 2005. However, the Dow is holding above the 12,000 level – a key round-number level that could act as the next layer of support. In addition, the Dow is just above its 2007 low of 11,939, while the 11,750 region is the site of its January 2000 peak. These levels could serve as support for the Dow.