Dow Retakes 16,000 Following Tapering Decision

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"The Fed's decision to taper caught many by surprise," observed Schaeffer's Senior Technical Strategist Ryan Detrick, CMT. "The thinking was that with the economy still on weak footing -- and this being Ben Bernanke's last central bank decision as Fed chairman -- the odds were in favor of pushing the decision to taper until next year." Nevertheless, the Dow Jones Industrial Average (DJI) soared on news of the $10 billion scale-back, and reclaimed the 16,000 level.

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Trading Topic of the Week -- Trading Low-Priced Options: DO buy higher-delta options . The closer an option's delta is to 1.00 (for a call, or negative 1.00 for a put), the likelier it is that the option will retain some intrinsic value at expiration. This offers you some "insurance" against the possibility of a total loss.

The Dow Jones Industrial Average (DJI - 16,167.97) flirted with breakeven for much of the day, but surged following the Fed's tapering announcement. By the end of the session, the blue-chip index was up 292.7 points, or 1.8% -- marking a record closing high. The Dow's 29 advancers were once again led by 3M Co ( MMM ) -- which gained 3.4% -- while a 0.3% drop for The Boeing Company ( BA ) marked it as the sole decliner.

The S&P 500 Index (SPX - 1,810.65) experienced similar price action, and finished 29.7 points, or 1.7%, higher -- notching an all-time closing high of its own. Meanwhile, the Nasdaq Composite (COMP - 4,070.06) advanced 46.4 points, or 1.2%, for the session.

Elsewhere, the CBOE Volatility Index (VIX - 13.80) plummeted after the Fed update, and closed 2.4 points, or 14.9%, lower.

CLOSING SUMMARY - INDICES

CLOSING SUMMARY - NYSE AND NASDAQ

A Trader's Take :

"The general consensus was that a decision to taper would bring with it a massive jolt of volatility, and probably lower prices," Detrick noted. "Sure, this is very early, but the initial reaction has been just the opposite. Volatility has imploded, and the bulls have taken charge. This is another reminder that following the crowd can be a dangerous game."

5 Items on Our Radar Today :

  1. The Fed said it will start tapering its asset-buying program in January , after nine out of 10 voting members of the Federal Open Market Committee (FOMC) voiced their approval of the move. The central bank will pare its monthly purchases of both bonds and mortgage-backed securities by $5 billion, for a net monthly reduction of $10 billion. (CBS Moneywatch)
  2. The Commerce Department said housing starts surged by a larger-than-expected 22.7% in November to a seasonally adjusted yearly rate of 1.09 million, marking a near six-year high. Conversely, building permits fell by 3.1% last month to an annual pace of 1.01 million. (MarketWatch)
  3. Apple Inc. ( AAPL ) secured an upward price-target adjustment in pre-market action, despite the stock's lackluster 2013 advance.
  4. Call activity surged on Facebook Inc (FB) , as one confident speculator upped the bullish ante on the Internet stock.
  5. BlackBerry Ltd ( BBRY ) saw some pre-earnings action in the options pits, which included a large block of sold-to-open calls.

EARNINGS

For a look at today's options movers and commodities activity, head to page 2.

STOCKS - NOTABLE CALL ACTIVITY

STOCKS - NOTABLE PUT ACTIVITY

Commodities :

The Fed's decision to start tapering in January pushed crude futures higher today, as the January contract added 58 cents, or 0.6%, to close at $97.80 per barrel.

Meanwhile, gold futures finished higher, as well, with February-dated gold climbing $4.90, or 0.4%, to end at $1,235 an ounce.

SCHAEFFER'S MARKET POSTURE



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This article appears in: Investing , Options

Referenced Stocks: AAPL , BA , BBRY , DIS , MMM

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