Fed Buying Spree, Stocks Continue

Wednesday, March 18, 2009

Fundamental Take:
The Dow Jones gained 90 points today after the Federal Reserve announced major plans for increasing liquidity in the system. The Fed will increase the size of its balance sheet from the current $600 billion by $1.15 trillion adding $750 billion in mortgage-backed securities. The Fed will also buy $300 billion in long-term Treasuries over the next six months inflating the money supply further while doubling its investment in agency debt from $100 billion to $200 billion this year. The Fed is clearly dumping an unprecedented amount of money into the economy hoping to inflate our way out this mess. Financials were the primary focus once again with the sector running 10% higher today. Homebuilders also did well on the back of the Fed comments gaining 7% as a sector. Gold exploded 6% higher immediately after the Fed's plans were announced at 2:15. The Fed is injecting an unparalleled amount of money into the system and investors see a high probability of this country experiencing hyperinflation down the road. The Fed's announcement today met China's worst fears of "reckless policies".

Technical Take:

The market is on a tear higher squeezing every last short out of the market even putting smiles on the faces of CNBC hosts again. The market is now over 1,000 points off the low of the year with the financial sector rocketing over 50% off the lows in just 8 trading days! The sell-the-news style trade did not occur today as the market was surprised by the Fed policy receiving more than anticipated. Consolidation is needed now as the the market showed today that it could not sustain the move off the Fed meeting giving up much of the Fed-based gains into the close. While I have be skeptical over the last couple days the market has continued trekking higher without me. Short-term momentum is currently very high and must be respected. Though, I would expect a pull-in tomorrow after such a large run.


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