There is no more powerful force in the stock market than a central banker with a printing press he is willing to use. The FOMC made it clear in its policy statement that is where we stand, and the bears didn't even try very hard to kill the ensuing buying spike.
For much of 2009, market players struggled to reconcile a surprisingly buoyant stock market with the gloomy economic situation on Main Street. What they were overlooking was the power of a huge wave of liquidity created by stimulus, bailouts and extremely cheap money. Much of that cash had no place to go, so it was parked in the stock market, and that is what keep us running up so steadily.
The FOMC policy statement today suggests that the Fed is concerned enough about the economy and unemployment that it will continue to supply cheap money. What it is doing now is nowhere as aggressive as what it did last year, but it is obviously willing to continue with further quantitative easing.
So does this mean we have clear sailing to the upside from here? Although we had a positive reaction to the FOMC news today, I don't think it was a huge surprise. The market has been anticipating some sort of accommodative action by the Fed for a while, especially after the weak employment data. That is why we have been holding up so well for the last six days or so.
The danger is that with the news now discounted as we enter the very slow trading for the remainder of August, we just won't have sufficient energy to make a further run. The technical condition of the major indices isn't bad at all. We are holding support and have consolidated nicely. The very light volume is a concern, but that hasn't mattered when the Fed is pumping liquidity.
We are at a tricky juncture, and we'll have a better test tomorrow of how positive this Fed action really is. I don't think it is as clear cut as the positive reaction this afternoon seemed to suggest.