Wednesday, January 28, 2009

Does The Fed Have Anything Left To Surprise Us With?

The market is getting a strong lift this morning on the news that the FDIC is in talks to create an aggregator bank that would buy the illiquid assets from other banks, which would allow them to get these assets off their balance sheets and minimize further write-downs and losses.

This news has investors very excited (the bank index is +13% higher), but the details of any such plan have yet to be figured out. Whatever the eventual outcome, this process is likely to take considerable time. Nonetheless, it is another "mustard seed" being planted, as Larry Kudlow likes to say.

There were more earnings reports last night and this morning, and many were better than expected. Wells Fargo (WFC) was the standout. Even thought they reported a loss, earnings were still above consensus. The company also said it was maintaining its dividend and has no plans to ask for additional TARP funds. The stock is almost +25% higher today. wow.

Yahoo and ConocoPhillips also beat estimates, while Boeing and WellPoint reported in-line numbers. All of these stocks are higher this morning.

Asian markets that were closed for a holiday spiked higher upon reopening. European banks are also leading those markets higher. The dollar is mixed, and the 10-year yield is up slightly to 2.55%. The VIX is down another -4.4% and flirting with breaking below the 40 level. It actually traded below 40 in the first half hour of trading.

Last, the FOMC meets today and will have its announcement later. Normally this would be the biggest news of the day, but with fed funds rates already at zero, what does the Fed have left for us? My guess is they will likely talk about buying LT assets to help keep interest rates low. If they mention things like buying other assets (corporate bonds), that would be a plus.

Trading comment: The S&P 500 has rallied right up to its overhead 50-day average. This is also the 4th straight day that the market is higher. And we have a Fed meeting today. This setup looks to me like it could result in a pullback after the Fed announcement. This just seems like a logical place for a little pullback.

As such, I am taking some partial profits on my index etfs that I bought last week. Nothing big, just locking in some trading profits and then I will look to add back if the market dips. All part of an active trading strategy.

long SSO


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