I guess if you're going to have bona fide credentials as a top-notch trader, you've got to give your impressions on what's going to happen in tomorrow's highly anticipated Fed meeting.

First, I'll say that in terms of how the market reacts, you can't just look at the Fed statement itself in a vacuum. I think the reaction has a lot to do with the state of the market, prevailing sentiment and other psychological factors aside from the issue of how much the Fed cuts its rate (if it cuts). The reason being that if too many people are leaning in one direction, then there is more likely to be a reaction in the other direction.

The technical state of the market right now is pretty neutral. After the gap down seven sessions ago and another red day, the market rallied decently last week, though not without a few sputters along the way, before stalling out today. It's pretty much of a jump ball with a slight edge to the bears as the correction from last week's rally just started today and has been pretty mild so far.

In terms of sentiment, almost every commentary I read states that if the Fed cut isn't half a point, then there will be a sell-off. That's pretty negative sentiment, although the market itself hasn't seemed to sense such danger until today, and even today the fear was not too overwhelming. So I would say that sentiment is mixed with an edge to the bulls due to the widely cautious commentary.

Now as far as the likelihood of a 0.5% rate cut, it seems that very few people are stating what would seem to me to be an obvious conclusion - that the half point cut in the discount rate a few weeks ago is likely a pre-cursor to a similar half point cut in the Fed funds rate at this meeting. It seems logical to me, though not a sure thing. However, even though there has been much caution abounding regarding the expectations of 0.5%, futures traders themselves still seem to think that it is likely.

Most prognosticators I have read are calling for a quarter point, but I think that the most likely scenario is half a point, with a quarter point next most likely and no cut at all a very slim chance. Given the recent cautious trading and the lowered expectations, I think that there is a good chance of a rally in the event of a half point cut. No cut would probably result in a sell-off, but I don't think that's likely to happen. A quarter point might just result in more waffling, up and down trading for the next month until positive fall seasonality kicks in.

Strength in the market has been evident in medical related stocks, where I took profits today in AIRM and LIFC and initiated new positions in BLUD and CMED. Cyclicals, including semiconductor stocks, have been lagging. I think that cyclicals will see the strongest rebound from a half point cut as traders see the cut as a positive economic boost. In this case, my recent laggards HURC, NVDA and VSEA could see a strong rebound. If the market is disappointed in the Fed action, I think the financial stocks will be hit the hardest. Backing this view, I doubled up on my SKF position again - also a play on the plethora of broker earnings announcements this week.