The Fed Spoils Price Advance by Raising the Discount Rate

The biggest story of the day was not the market action but the action by the Federal Reserve by raising the discount rate.  Stocks advanced once again as volume declined in size on the NYSE while the NASDAQ finished just under yesterday’s level.  However, the focus is now on what the Fed’s move in the discount rate will do to the markets.

It is interesting development the Fed would raise the rate the night before options expiry.  Conspiracy or not the Fed only raised the Discount Rate in a telegraphed move.  A move, in the long run will only assist this economy going forward.  In the near term it is an interesting move that will certainly spark a conspiracy debate.

Many stocks were lower in after-hours trading, but most stocks were down on light volume.  We don’t pay too much attention to after-hours trading because it is mostly done on light volume and stocks are much more easily manipulated.

Tomorrow’s expiry will certainly bring volume into the market, but what will be more important will be how stocks react.  If we are to open lower like last Friday, we’ll need to see buyers stepping up at the lows.  The past two Friday’s we’ve seen buyers stepping in at the lows and pushing stocks into positive territory.  We’ll be paying attention to whether or not we get similar action once again.

Once again, this market has certainly defied logic.  The NASDAQ is currently on a 5 day consecutive streak and volume hasn’t been particularly large.  Tomorrow will be important because volume will certainly be there and if price action continues its positive track our weekly charts will show our first weekly accumulation in quite some time.

In last night’s market commentary I warned of chasing stocks.  Chasing will undoubtedly shake you out of strong stocks.  If you happened to buy stock at the end of the day today and now with the Fed’s move sending futures lower and possibly your stock.  Are you able to stomach showing a loss?  Many traders, novice and professionals will sell immediately only to see the stock higher by the end of the day.  Do not chase stocks.