By Dave Fry, founder and publisher of
and author of the best-selling book
February 18, 2010
BEN SPILLS SOME PUNCH
After the close Thursday the Fed raised the discount rate to .75% from .50%. They must not have liked the PPI number and recent action by bond vigilantes driving up interest rates. These forced them to move I assume. It's strange they would do this on a Thursday before options expiration. Maybe they have some positions on. Just kidding, they wouldn't do any such thing would they?
Meanwhile back to Thursday's pre-Fed announcement, stocks rallied due to earnings some said; but, that seemed odd since good earnings weren't dominant Thursday. Hewlett Packard and Priceline were good but heavyweight Wal-Mart beat estimates but offered a poor outlook. The latter was ignored as XLY (Consumer Discretionary ETF) rose on the belief that Wal-Mart's difficulties portend better business for higher end retailers. (I kid you not!)
Economic data, with the exception of the Philly Fed, was horrible. Jobless Claims rose substantially (hey, they beat estimates...snicker) while Producer Prices reflected a growing inflationary scare.
Analysts were busy upgrading stocks like Nucor from underweight to neutral. Boy that seems gutsy doesn't it?
But most major averages reclaimed their 50-day moving averages which are important to many. Further, with bad news dominant, at least in my opinion, markets rose which is a positive.
Volume remains on the light side while breadth was positive again.
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Thursday's action is now really old news given the Fed action. How markets respond, especially on an options expiration day will be something to behold. The knee-jerk reaction has been to sell as noted by After Hours trading at MarketWatch:
Further, at around 6PM EST forex and metals trading looked like this courtesy of forex-markets.com. The obvious is the rally in the dollar and sell-off in precious metals.
After over 35 years in the business I've seen some weird reactions to bad news. Most of the news pre-Fed was negative yet markets rallied and that's bullish. The Fed's actions may be well-received, and if so it will be spun that the Fed is tough on inflation which is a good thing. After all, in true Orwellian fashion they stated the rise in the discount rate wasn't tightening...seriously! If not, it means we're in a rising global interest rate environment as the punchbowl is slowly but persistently removed.
Let's see what happens and you can follow our pithy comments on
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Dave Fry is founder and publisher of
, Dave's Daily blog and the best-selling book author of
, published by Wiley Finance in 2008. A detailed bio is here: