MARKET LIKES CHANGE IN FED WORDING AND APPEARS READY TO RESUME DECEMBER RALLY

FED DROPS REFERENCE TO ACCOMODATION ... The Fed raised short-term rates another quarter point today to 4.25% as expected. However, it dropped its reference to "policy accommodation". The market took that to mean that the Fed may be nearing the end of its tightening cycle. Whether that's the case or not, rate-sensitive stocks like banks and utilities (Charts 1 and 2) were among the day's leaders. Today's market gains also came on rising volume. With the market having been in a holding pattern for the last two weeks, it now appears ready to resume its traditional yearend rally.

Chart 1

Chart 2

DOW BOUNCES OFF SUMMER HIGHS ... The Dow has at least two technical factors working in its favor over the short-run. One is the fact that it's bouncing off chart support along its August/September highs (see green line). That's about where a short-term pullback should end. The second positive factor is the fact that the Dow pullback has lasted about two weeks which is about the right amount of time for a short-term pullback to last. I suspect that the Dow is now in position to make another run at its 2005 high just below 11,000. The other major stock indexes appear ready to rally as well.

Chart 3

S&P 500 BOUNCES OFF 20-DAY AVERAGE ... The S&P 500 has been trading sideways for the last two weeks. In so doing, it has stayed above chart support along its summer high and 1250 (the late-November low). The 9-day RSI line is bouncing off initial support at the 50 line which is usually a sign that a short-term pullback is going to be relatively shallow. In addition, the S&P has held its 20-day moving average which is the first line of defense in any short-term pullback or consolidation. As with the Dow, time and price considerations suggest that the two-week consolidation in the S&P 500 has probably run its course and that a new recovery high is likely. There's a caution note however. The daily MACD lines are still in negative territory. That will probably correct itself if the market does move to new high ground. But it also suggests that this may not be a particularly long-lasting rally. Enough to get us through December and maybe even into January. After that, season trends turn more negative. Historically, January is one of the best times of the year to take some stock market money off the table. I'd be thinking about that.

Chart 4