Stocks continue to ramp on Fed promise of near zero rates

Thursday, December 18, 2014 -

The Dow Industrials vaulted to their biggest two-day gain in more than three years Thursday, bolstered for a second session by reassurances from the Federal Reserve that it remains in no rush to raise interest rates.

Stocks showed another substantial upward move on Thursday, adding to the strong gains posted in the previous session as short-covering helped to create the strongest two-day gain in years as the major indexes have reclaimed most of the early December sell-off in just two powerful sessions, courtesy of the Federal Reserve.

The indexes continued to find upward momentum going into the close, ending at the best levels of the day. The Dow soared 421 points (+2.4%) to 17,778, the Nasdaq jumped 104 points (+2.2%) to 4,748 and the S&P 500 surged up 48 points (+2.4%) to 2,061. The NYSE finished at +2.15% and the small cap Russell 2000 at +1.47% as – as the large caps outperform the higher risk stocks.

This momentum buying appears to be a positive reaction to the Federal Reserve’s monetary policy announcement of continued zero interest rates well into the future – causing the most shorted stocks to rise the most, clear evidence of shorts being burned once again.

Today, the rest of the world caught up to the U.S. rally, as Japan’s Nikkei 225 Index surged up by 2.3 percent, while Hong Kong’s Hang Seng Index jumped by 1.1 percent. The Eurozone also saw substantial strength. The U.K.’s FTSE 100 Index shot up by 2 percent, while the German DAX Index and the French CAC 40 Index soared by 2.8 percent and 3.4 percent, respectively.

Volatility in spades is usually not a good long-term sign.

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Bullish Rally or Back Test?

Volatility has been absolutely nuts here at the end of the year, especially ahead of tomorrow’s options expiration date, which may also help explain why stocks have had this explosive two-day rally in spite of plunging oil prices.

Yesterday, stocks surged after the Fed said that while it was edging closer to raising interest rates from close to zero, it will be “patient” in deciding when to do so. This triggered computerized buy programs of investment banks to recoup what was lost in the week before.

Oracle’s better-than-expected results late Wednesday also helped, which caused a rush into . . .

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