20070817 The 60 min FKLI made a reversal on 17 Aug 2007 on the 60 min chart. Was it insiders at work, or was it buyers snapping up cheap stocks at oversold conditions? Later on that night, the Fed announced that it dropped its discount rate by 50 bp. This is the rate by which commercial banks and authorised dealers can borrow money from the Fed on the short term money market. As we all know, that market in the US and Europe had ocmpletely frozen up, with banks fearful of rolling over short term money on an overnight basis. Basically, the leveraged finance market totally shut down with no deals done. Hedge funds and Leveraged buy out kakis, and mortagage originators have some reliance on this means of financing. With redemptions, the hedge funds are stuck without cash, so they just sell whatever assets they have, which leads to the crash this week of equity markets. OOther markets followed eg the carry trade on JPY was unwound, bond prices readjusted. This is the 'repricing of risk' occuring in the marketplace the TV are talking about incessantly. In the big picture, fear drove the selling in markets, and if this leveraged financing market doesn't recover, the markets fuel that has driven the equity market's meteoric rise may not be enough to fuel the recovery to the highs.

Looking at the 60 min chart, we might want to watch the upper channel line as the basis of the next trade.