Looks like Wall Street got an early Christmas present after yesterday’s surprise Fed announcement concerning interest rates. Most experts had expected the Fed would cut the rate for overnight loans between banks from 1% to 0.5% but jaws hit the floor when the Fed said it use “all available tools” to deal with the current economic crisis. The rate now stands at a range of zero to 0.25%. Amazing.

The news sparked a big rally as the Dow surged 360 points, or 4%, to close at 8,924. The S&P 500 jumped 45 points to finish at 913 while the Nasdaq outperformed both, charging higher by 5.4% and settled at 1,589. More on the Nasdaq in a minute.

Naturally, the flood of money had an adverse effect on the U.S. dollar which fell hard after the FOMC made its statements. A weak economy and low interest rates are not the best elements for a rising dollar which had done well against other currencies recently. However, we got a new ballgame now.

Oil prices slipped about $1 to $43.55 a barrel ahead of today’s OPEC meeting. There is talk they could cut production by 2 million barrels per day so the market will be watching this event closely. Despite the drop in oil, gold put in a good day as it added $6.20 and now stands at $842.70/ ounce. Good news for the gold stocks as well. The gold trades from Monday morning’s blog are up 20+%.

The surge in the Nasdaq also paid big dividends for our PowerShares QQQ Trust (QQQQ, $30.56, up $1.40) trade. The December 29 calls (QAVLC, $1.65, up $0.72) were originally profiled at 80 cents and were going for $1.15 before the Fed announcement. Our initial target was $1.20 so if you held out you gained another 30% which now makes the trade a solid double from our original entry price. If you closed the trade out before the market closed on Tuesday, good for you. If you sold half and kept the other half open then you could be looking at further gains if the market continues to rally.

Goldman Sachs (GS, $76.00, up $9.54) added on another $4.50 after I mentioned their earnings yesterday morning. If hindsite is 20/20 then I should’ve pounded the table on the December 75 calls (GSLO, $3.55, up $2.30) which were going for $1.50 at the time. I told you there would be some action in the calls but they were too rich for my blood. They traded to a high of $4.70. Yeap, we could have turned $1,500 into $4,700 in a matter of hours…

Futures are pointing towards a lower openimg this morning so I wouldn’t be surprised if these two trades gave back a little of their profits to start the day. However, it will be interesting to see if the Dow can take out 9,000 and if the Nasdaq can trade past 1625-1650 today and add to yesterday’s gains. With 15 minutes to go before the opening bell, the Dow futures are down 81, Nasdaq futures are down 6 while the S&P futures are lower by 10.20.

Rick Rouse
Rick@OptionsMentoring.com

The futures are pointing to a lower opening this morning. There are a lot of stories making the rounds today, some good, some bad. The market has had some rough sledding of late and last week’s sell-off took the Dow below 12,000 for the first time since mid-March.

Housing remains weak, and oil continues to rise, two combinations that have dealt a big blow to the economy and investor enthusiasm. The dollar remains stuck in neutral and the Fed needs to do something. Now. Former U.S. Federal Reserve Chairman, Alan Greenspan, went on record this morning saying the U.S. economy was “on the brink” of a recession and that the chances of the economy falling into recession were more than 50%. Yikes.

The Fed is beginning a two-day meeting to determine whether to change its key federal funds rate or keep it on hold and we can expect some sort of market moving news on Wednesday. Some wish the Fed’s next move would be to cut interest rates, but that such a move is probably not going to happen. With today’s lower opening, it is clear the market will be anxious and nervous at the same time about what the Fed will say tomorrow.

One talking head says if the Fed gets it right from here on out, the Dow will rally 2,000 points to 14,000. That is a pretty bold statement but either way we’ll find out something at 2:15PM on Wednesday.

Rick Rouse
Rick@OptionsMentoring.com