0.25%, Now What?

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0.25%, Now What?

Post  harpal1980 on Thu Aug 13, 2009 1:27 am

Yesterday’s U.S stock session was characterized by high volatility as investors were on tender hooks, prior to the Fed’s rate decision. Even though the Fed left its fund rate at an expected low of 0.25%, it contributed to the intraday volatility, mentioning that it is going to cut back on its asset purchasing program.

Over the last couple of weeks, the Fed has purchased Government bonds at the longer end of the curve, keeping yields at a low rate. The Federal Open Market Committee promised yesterday to keep interest rates low, despite recent economic data hinting that the worst could be behind us.

In their statement following the decision, the Fed touched the economic situation, mentioning that the housing sector is now showing mild signs of improvement, while acknowledging the reality of improving economic conditions. Despite the optimism, they were careful with their words, signaling that the recovery could be a long and harsh one. The outcome was that the Fed will continue to purchase up to $1.25 trillion in mortgage-backed securities and other debts from housing giants, but will cut back on its bond purchasing program.

Stocks rallied following the statement, but gave up their gains towards the end of the session. The S&P500 closed the session higher by 1.15%, while the NASDAQ led the markets higher, closing with a gain of 1.56%. Even though yesterday’s session did show a promising situation, increasing bullish traders’ expectations of a further rally, one must take into consideration the chart’s prior high-resistance-levels. Furthermore, yesterday’s session wasn’t accompanied by dramatic increasing volume; therefore additional confirmation is required to head into long positions and jump back on the saddle. Techs and Financials both showed an impressive session, leading the indices higher with an average gain of 2%.

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