Stocks reacted rather mutely to the election results as there weren't any real big surprises.  The gridlock in D.C. had already been priced into the market leading up to the elections.  The indices opened slightly higher but then drifted lower awaiting the final word from the Fed at 2:15 PM ET.

Once the Fed policy was read, things got pretty wild.  The policy statement was a little longer than usual, and with almost each sentence being read, the Dow was moving 20 or 30 points in each direction.  It was quite fun to watch.  Here is a one minute chart (each bar represents one minute of trading) and you can see how violently the index bounced up and down before finally settling higher.              
        
The 26-point gain in the Dow actually took the index to its highest close in about two years.    
                                 

The catalyst was the announcement of a $600 billion quantitative easing package for the next 8-months - that's $75 billion a month.  I have my suspicion as to what that could do to the market in the long run, and it is not good, but when money is being pumped into the system at this rate, it is difficult to bet against stocks.

The trend remains up and the powers that be do not seem to want to see the market go down.  So, what else can you do but ride the wave?  At some point the wave is going to come crashing down on us, but it could be days, weeks, or months before that happens.  When the short-term trend breaks, that might be our first sign to get out of the way.
        

                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

I thought it was interesting that the VIX (volatility index) dropped like a rock after the announcement.  This tells me (and I could be wrong) that investors are betting that QE2 will significantly decrease the chances of high volatility (translation - a big sell off), at least in the short-term.

After rallying for a couple of weeks, the dollar is back down testing the recent lows.  Should this test fail and it starts another leg down, it will be another reason to embrace this market rally.


                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Believe me, I can think of many reasons to go sit on the sidelines as the financial picture for the U.S. is wrought with uncertainty, and it wouldn't take much to scare me out, but the trend is up and these trends can last a lot longer than we might expect.  When it's over, it will be over, as Yogi Berra might say.  But until then, it ain't over.

We get the October jobs report tomorrow (Friday) and that could trigger some action in stocks, but the market may have a bit of a cushion under it for a little while.  

Thanks for reading!  We'll see you tomorrow.

Tom Crowley