Rally Continues Into Fed

Tuesday, March 17, 2009

Fundamental Take:
The optimists are back with the market rallying 178 points as the financial sector outperformed once again gaining 6.5% for the day. The market seems to be pricing in an expected announcement that the Federal Reserve will expand its balance sheet in tomorrow's release of the Federal Open Market Committee policy statement. An increase in asset purchases by the Fed would continue to clean up the bank's balance sheets and promote greater lending and liquidity. The most positive fundamental news out there seems simply to be the lack of negative news. After weeks of enduring negative headline after negative headline, the market is able to rally on optimism that the worst may be behind us. Investors are also hoping to see a financial hold a secondary equity offering to repay the Troubled Asset Relief Program loan.

Technical Take:

Bulls are clearly in control squeezing the last shorts out of the market especially in the financial sector. Yesterday's potential topping tail in the charts was engulfed today as we rallied through yesterday's high with ease. Just as stocks went much farther to the downside than expected, they are rallying much farther than expected to the upside. Short-term momentum is currently very strong as buyers chase this market higher. Yet, being a buyer at these higher levels spells trouble and the market may have a "buy the rumor, sell the news" type of trade tomorrow. I will be prepared for a heavy amount of selling to hit the market tomorrow on the Fed policy statement release as buyers have anticipated an expansion of the Fed's balance sheet.


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