The action today was a textbook example of the adage, "Don't fight the Fed." Ben Bernanke made it quite clear in an editorial today in the Washington Post that the Fed wants to inflate the stock market and keep interest rates near zero in the hope that it creates a virtuous cycle that leads to economic growth.
There is no shortage of economists and pundits who think that this quantitative easing policy is a recipe for disaster, but market players don't really care. They are focused on making money today, and that means you set aside any doubts and just keep on buying.
We had a big point gain on great breadth and increased volume. It was breakout action and we gained some additional traction on the backs of bears, who were quite convinced we had a "sell-the-news" response coming after the Fed confirmed the well-anticipated QE 2 program.
Since the low in March 2009, this market has consistently had straight up rallies that go much further than most folks think is possible. If your style is to try to catch turning points you have been having a miserable time. The problem is that none of the usual indicators matter very much when the Fed is the main driving force in the market. This market punishes those who over think the action -- especially if they have a pessimistic bent.
We are a bit technically overbought now, but we certainly have some strong momentum. That creates a very interesting setup for the jobs report in the morning. The bulls like to think they are in a no-lose position when it comes to economic reports. (If the numbers are bad, the Fed is going to keep printing money. If the numbers are good, then that means the economy is improving.) Of course, at some point, this market may worry that we have priced in QE 2, but it sure isn't acting like we have.