Fed rates unchanged

As expected the Federal Reserve left its key fed funds rate unchanged today. More importantly for the stock market they said they will keep this key rate at exceptionally low levels for an extended period of time. This translates into continued low rates on money market funds which average a paltry .25%. With a tremendous amount of cash on the sidelines earning practically nothing we think these investors are going to add some of their money back into stocks fueling the market higher.

Positive comments from the FOMC meeting today sent the averages soaring. The Dow jumped 120 points +1.3%, S&P 500 +1.15% and NASDAQ +1.47%. 72% of the stocks listed on the NYSE traded on the upside and 68% on the NASDAQ.


The recent peak prices for the advance that began at the March lows were Industrials, 9370.07 and Transports, 3749.58 -- both of those highs were recorded on August 7.

Yesterday the Dow closed at 9241.45 while the Transports closed at 3702.98. In other words, the Industrials closed 129 points below their August 7 peak. The Transports closed 47 points below their August 7 peak.

If this advance is to continue, then both Averages will have to rally and close at new highs above their August 7 peaks. If they can't do that or if only one Average betters its August 7 peak, then we are dealing with potential trouble.