For a while this morning, it looked like we were going to build on Tuesday's intraday reversal, but we found support, and the focus then shifted to the Fed's first buys under its new QE2 program. We all knew it was coming, but the initial buys are a bit bigger than expected, and that was all it took to turn the tide.
I don't know if it is the actual open-market buying by the Fed that is driving the market or just the perception that the Fed is going to provide strong underlying support, but it doesn't much matter. The market is extremely confident that the Fed has its back, and it is preventing any sort of sustained buying pressure.
Normally, such positive factors lose their ability to drive the market after a while. They are well anticipated and are eventually priced in, but that has not been the case for QE2. Time and again, it boosts the market at exactly the right time and just keeps the trend going and going.
Many market players would prefer a less manipulative catalyst, but there isn't much we can do about it. We just have to make sure we understand the dynamic that is at work and not fight it, even if we don't think it is such a great thing.
CSCO earnings are out, and the stock is seeing a fairly severe negative reaction so far. The numbers aren't bad, but expectations may have been too high. Cisco has been a laggard with a relative strength rank in the bottom quartile, but it still may assert a little pressure on technology stocks tomorrow.
The uptrend is still intact, and the bears didn't do a very good job at all of building on yesterday's weakness. However there was a lot of choppy action, and I see some reasons for caution here. There is no reason not to take the good trades that are still out there, but we also need increased vigilance.