Thursday, November 04, 2010

Stocks Rebound on Federal Reserve Announcement

The market responds positively to the Federal Reserves $600bn asset purchase plan

Big two market events down, one to go for this week. The Republicans stormed the elections with big wins in the House of Representatives, but failed to make a big push in the Senate. Even with a big Republican victory the market quickly turned its attention to the Federal Reserve’s Rate Decision. More importantly the market was looking for language specific to a fresh round of asset purchases from the Federal Reserve. Ben Bernanke and company announced a $600 billion ($600,000,000) round of buying of the long end of the curve. In true post Federal Reserve announcement action the market swung wildly as it tried to digest the news. By the end of the day the market closed just off the highs of the day with volume jumping above yesterday’s level and our uptrend remains intact.

For most of the session stocks spent a good amount of time in the red as traders feared asset purchases may NOT be as big as previously thought. Fear can lead you to mishandle your stocks and cause you to sell out too early. We have a strong trend with plenty of stocks moving higher. It is best to stick with them rather than to cut out of them too early. Today is a prime example you must stick with your winners until they begin to show signs of major weakness especially in a strong uptrend. Taking a portion of your position off to lock in gains is wise, but removing an entire position will cause you to sit out major moves in some big stocks.

A major hurdle today was cleared with the April highs with big volume. The market along with our leaders will continue higher with such a strong move today. If we do turn with leaders breaking down we’ll adjust accordingly, but all signs right now are pointing for this market to continue higher. Regardless of what you think about the Federal Reserve printing money or if we were pricing the market in gold the bottom line higher prices are to come.

The market will set its sight on the Unemployment release on Friday. Perhaps a worse than expected jobs report will bring on talk of Quantitative Easing part three, but at this point any is pure speculation. So far, this week we have seen the market move in a positive manor despite what we may have seen as headwinds. Friday’s number in the long run may not even matter with strong corporate earnings with the Federal Reserve and elections behind us. The key takeaway is our stocks are acting well, the market is acting well, and our stock leaders are continuing to show strength. Until this changes, all systems are go for higher ground.

Remember, always cut your losses short and ride your winners!

No comments: