Dovish Fed Helps Give Stocks A Big Boost, As Stocks Rise Across The Board.

February 1, 2007

Investors were definitely happy to see the Fed leave rates unchanged–even though I am not sure what else they were expecting–and rewarded the stock market with gains across the board. The Fed stated that core pricing pressure subsided, which relieved inflation concerns, and stated that economic growth was firmer and the housing market has stabilized. These comments without a doubt contributed to the gains.

At the close, the DJIA led the way higher with a .79% gain, the SP 500 gained .66%, the Nasdaq rallied .62%, and the SP 600 gained .57% hitting another all-time high. Leading stocks lagged, with the IBD 85-85 and IBD 100 indexes up .2%. Not what you like to see on such a strong day.

Volume was much higher on both the NYSE and the Nasdaq. That is just what you like to see on a day of strong gains. The volume surge and bounce by the Nasdaq right on the 50 dma is also a very positive development from today’s trading.

Breadth was positive on the NYSE by a 2-to-1 margin and was positive on the Nassy by a 5-to-4 margin.

Everybody already knows everything about the Fed. So I am not going to get into it. I just think it is a good thing that the Fed sees the economy getting stronger. However, I still wouldn’t mind a quarter point drop. I still think that would be healthier than where we are here and psychologically it could add a boost to consumer confidence. It isn’t until the market starts selling off and they are cutting rates that there is anything to worry about. Cutting rates in a rising market would actually be very good. But that is all wishful thinking.

The facts say that the stocks that did participate today all did so from lagging groups. Just like yesterday it was oil, today it was transports and builders. The DJ Transportation index gained 2.7% and the IBD Transportation-Service group EXPLODED upward by 6.3%.

I would rather see small caps, tech, and leading stocks leading, instead of big caps and laggards in builders and transports. So, to me, it appears another confirmation that we are going to be in a choppy market. If we are rotating back to old leaders from current leaders or they are going to play catch up, the Nasdaq may have problems making significant gains here.

Moving on to my next subject: GDP. The GDP grew 3.5% this quarter compared to economist projected 3% total. That growth shows you why the stock market is still going up. With the economy growing the way it is, the market is going to keep on moving higher. So all the bears can try to call tops all they want but this strong economic data PROVES that the market AS ALWAYS is right. And it is rewarding investors who follow the trend. I am starting to get some really great returns on longs that I took when this rally started.

This is still a bull market and I am still finding plenty of fresh new longs to take in this environment. And to go along with all the new longs I find, I am not selling off many holdings. There have been very few complete sells and there really have not been that many stocks flashing scary sell signals. A lot of stocks are clearly signaling profit taking signals on the way up and that is helping me lock in gains on the way up so when the selloff comes instead of panicking I can hold and wait for the bounce that normally happens in bull markets. If the stock doesn’t bounce, obviously there is something wrong and it needs to be sold.

I am not going to fight the trend and if you are shorting this market you are making a silly arrogant mistake and missing out on some huge winners. Hopefully, everyone reading this is long and strong. Aloha and I will see you in the Chat Room.

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