The Federal Reserve tonight announced an emergency interest rate cut of a full percentage point to NEAR ZERO in an attempt to support the economy and calm fears over the rapidly spreading COVID-19 virus. The Fed also said it would buy hundreds of billions of dollars in government debt to offset the current financial crisis. We are seeing here a repeat of the same strategies the Fed used in the 2008-2009 crash, i.e. ZIRP and (a new form of) QE. Will they work this time? We will have to wait and see. At the moment, the overnight markets do not seem to be responding that well, but that may change tomorrow morning.
As I mentioned in my last blog, we are now watching for a bottom and some sort of rebound in equities.That may have started already with last Thursday's low and Friday's bounce. But if the Fed's emergency "rescue" fails to impress Wall Street investors and doesn't calm their fears of the coronavirus epidemic, we could see this market move even lower into the end of this month and into our next strong reversal zone (March 24 - April 1). We are still on the sidelines of the broad stock market.