Market Advances as Volume Declines

From 1990 to 1997, Kevin Haggerty served as Senior Vice President for Equity Trading at Fidelity Capital Markets, Boston, a division of Fidelity Investments. He was responsible for all U.S. institutional Listed, OTC and Option trading in addition to all major Exchange Floor Executions. For a free trial to Kevin’s Daily Trading Report, please click here.

The Fed surprised the market last night and hiked the discount rate, which adds some uncertainty to the markets even though the Fed said it wasn’t a policy rate change. The US Dollar strengthened on the hike, and commodity prices declined, but have come back some prior to the 9:30AM NYSE opening, as have the SPX futures which are now -3.0 points (9:10AM) after being down over 10 points.

The SPX has rallied +6.1% from the 1044.50 low last Friday (2/5) to yesterdays 1108.24 intraday high before closing at 1106.75. The market is now ST-O/B, with the .618RT to 1150.45 at 1110, and yesterday was day 8 of the rally, or .618 of the 13-day decline from the 1150.45 high to the 1044.50 low so there is symmetry and it doesn’t favor the short term buy side. The major indexes have advanced 3 straight days on declining volume.

It has been a quiet trading week for day traders because of the low volatility and sideways price action for most of each day after the futures induced first hour price action, followed by horizontal ranges (see chart). Today is option expiration, and the buy program price action bounce yesterday starting on the 2:15 PM bar was mostly option related.

The CNBC spin will be that the Fed raised the rate because the economy was stronger, and the emergency was over, but that is fantasy land. So what is the status of the Toxic Assets Mr. Bernanke, and the $trillions in debt, spending, proposed tax hikes, and anti business regulation proposals, not to mention that the consumer is realizing with increased city, property, and state taxes as personal income declines etc etc etc.

Have a good trading day!

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