Fed Issues One Masterful Statement: Stocks Rally

Stocks rallied in the morning, then again in the late afternoon, as the Federal Reserve issued a masterful statement that, while it gave more space to concerns on inflation, did not show any increase in the lone dissent arguing for a rate hike. Traders are coming to the conclusion that the chances are increasing that the Fed will not raise rates until 2009.

Bulls are fervently hoping that today's action--commodities down, stocks up--are a sign that we are finally out of the woods, but most traders are not so sanguine.

First, it is likely that oil will stage some kind of modest rally or at least stabilize, stock bear argue. Then there is the technical problem: there are not yet dramatic breakouts, or heavy volume days. Today, they are buying financials and everything else, but even with the Fed statement the volume is light.

Bottom line: we need more sustained up moves, but even bears can’t help but be impressed with the size of the moves today.

Meantime, several parts of the market are breaking down, despite modest gains today:

1) The S&P energy sector is now in bear market territory, dropping more than 20 percent from its high in May to the close yesterday;

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