Friday, February 19, 2010

Morning Briefing for February 19th: Watching an Evolving Trading Range

So far, at least for stocks (ES futures, above), the Fed's decision to hike the discount rate has not been a game changer in the short run. We saw selling on the news and some follow-through weakness overnight, but as I was tracking markets here in London prior to the U.S. open, it was clear that a rout was not in the cards and that markets are not expecting that a discount rate hike will necessarily bring a near-term hike in the Fed Funds rate (i.e., a more general tightening of monetary conditions).

That leaves us in a trading range over the last several sessions defined by today's overnight lows and yesterday's highs, with the low 1100 area important resistance from a longer time frame vantage point. Equity put/call ratios are showing neither unusual bearishness nor bullishness thus far today, volume is not elevated relative to recent norms, and intraday sentiment has been mixed. It may take a catalyst greater than the Fed news to resolve this trading range.