THE DOT - if this turns orange or red be alert

Thursday, February 18, 2010

FED raises discout rate by 25 BP with a surprise timing

Well I was wondering why we had such a high Put ratio today around .90 most of the day which is for updays very unusual - now we know that someone knew the FED would do that raise.
Astonishingly that fits perfectly in my scenario that after reaching the 1100/5 target we would see a pullback for a few days to 1075/80.

excerpt

Fed Raises Discount Rate to 0.75% From 0.50%

The Federal Reserve said on Thursday it was raising the interest rate it charges banks for emergency loans, citing improvement in financial market conditions.

The Fed said the discount rate, the interest rate it charges banks, would be increased to 0.75 percent from 0.50 percent, effective Friday.

"Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities," the Fed said in a statement.

Wall Street sign

"The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy," it said.

Market watchers were shocked by the unexpected announcement, which came after markets closed Thursday.

“I'm shocked. Completely shocked,” Todd Schoenberger, managing director of LandColt Trading said of the Fed’s move to raise the discount rate. “It makes me wonder if the CPI number coming out tomorrow is going to be just absolutely horrible—maybe they got wind of something,” he said.

Schoenberger expects the Fed to raise the federal-funds rate, the rate banks charge each other, at its next meeting March 17-18. He, like many traders, didn't expect the Fed to make a move until the second half of this year.

The analyst expects stocks to pull back from the Dow Jones Industrial Average's recent three-day winning streak as a result of the Fed move.

"Expect a dramatic selloff at the open tomorrow morning," Schoenberger said.

The U.S. dollar reached its highest point against the euro since May of 2009 after the Fed's announcement Thursday.

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