Stocks tumbled today, supposedly because of a weak report on pending home sales. But that's just an excuse.

Truth be told, the market was overbought after last week's (and yesterday's) gains. If the home-sales report hadn't come out, investors would have found some other "reason" to cash in part of their recent winnings.

What do I mean by overbought? The market, like most systems in nature, has limits to how far it can go up or down within a specific time frame. You can estimate these limits, and measure the market's progress toward them, with tools such as the percentage of NYSE stocks rising or falling daily, or the rate of change in a market index, or the number of stocks touching new highs or lows.

By the close of yesterday's trading, the market's cup was about as full as it gets, on a short-term basis. So today's drop is no surprise, and nothing to fret about.

Rather, we should be watching carefully during the next few sessions to see how close the major stock indexes (and our technical indicators, based on market behavior) come to their August lows.

Worst case, at least as far I can now envision it, would be a dragging, indecisive market that failed to break out in either direction until October. Even then, however, I expect the final resolution to be on the upside as the Federal Reserve cuts interest rates two or three times, keeping the broad economic expansion intact.

We hear you loud and clear, Dr. Ben! It was shaping up to be a good day on Wall Street anyway. But after the Federal Reserve's announcement at 2:15 pm ET, stocks bolted into the blue. The Dow closed up a steaming 336 points -- for the very best of reasons.

Why the huge run-up today? Because the Fed gave investors all they could have hoped for, and more. First, the central bank voted to chop the crucially important federal funds rate (the interest rate at which banks lend overnight money to each other) by half a point, to 4.75%.

Ahead of the Fed meeting, some pundits were expecting a quarter-point drop and some were expecting a half. A few curmudgeons (foolishly) predicted no cut at all. Bernanke & Co. decided to go for the whole nine yards.

But they didn't stop there. In an even more dramatic gesture (dramatic, at least, to the financial insiders who understand such things), the Fed pulled a surprise. They slashed the discount rate by half a point, too, to 5.25%.

In normal times, nobody pays attention to the discount rate, because almost nobody borrows at that rate. The discount window is typically reserved for emergency loans that the Fed makes to institutions facing financial difficulties.

Last month, the Fed slashed the discount rate by half a point -- and even urged healthy institutions to take advantage of the concession. Now Ben's crew has dropped the discount rate again.

It's as if Bernanke is saying to the financial markets: "I've got a firehose full of cash, and I'm going to keep shooting it until this conflagration (the credit panic) is thoroughly doused. Got the message?"

I don't know about other investors, but the message hasn't been lost on me. This latest Fed move, and the market reaction to it, are almost a carbon copy of what happened at the end of the 1998 Asia/Russia/Long-Term Capital Management crisis.

Back then, fed funds dropped from 5.5% to 4.75%. Then as now, the stock market exploded with a daily gain (October 9, 1998) very much like today's. And the S&P went on to skyrocket 39% over the next 12 months.

I'm not predicting quite such a moonshot this time, because the animal spirits of the 1990s are gone. Looking out a year, however, I think a 20%-25% rise in the blue chip indexes is well within the realm of possibility.

We're hearing more and more talk lately about the possibility of an economic downturn -- especially after today's gloomy reports on consumer confidence (Conference Board) and housing prices (Dr. Bob Shiller). So is a recession really in the works?

It's going to be a close call. Clearly, the housing slowdown -- which has proved longer and deeper than I initially expected -- is putting a damper on the overall economy, the consumer sector in particular.

Fewer people these days dare to use their home equity as an ATM. That's hurting a wide swath of industries -- starting with the obvious housing-related businesses like furniture or power tools, and fanning out to things like cars, boats and even apparel.

Despite the day-to-day jitters, though, I think the economy will skate past the hole in the ice. Corporate profits, in the aggregate, should continue to grow in the quarters ahead. I don't foresee an earnings implosion a la 2000 to 2001.