Fed Spurs a Mixed Photo Finish as Dow Abandons Winning Streak

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"It was a wild day on Wall Street," observed Schaffer's Senior Technical Strategist Ryan Detrick, as the Dow Jones Industrial Average (DJI) closed with minor losses after spending nearly all of the day in the black. "We rallied out of the gate after the Fed decision," Detrick outlined, "but after [Fed Chairman Ben] Bernanke's Q&A session, we saw some strong selling."

Continue reading for more on today's market, including :

plus...
  • Details on the Fed's latest move, news on five hot stocks, and today's Tweet of the day, which came shortly after the Fed decision.

The Dow Jones Industrial Average (DJIA) was unable to keep its winning streak alive, dipping into negative territory in the final hour of trading. By the close, the blue-chip index had given back all of 3 points, or 0.02%. Despite the technical loss, 17 of the Dow's 30 components were higher on the day, led by Hewlett-Packard ( HPQ ), which gained 1.9%. Wal-Mart ( WMT ) continued to founder amid concerns out of India, and closed with a 2.8% loss.

The S&P 500 Index (SPX) managed to eke out a victory, however, peeking above breakeven at the closing bell to settle with a gain of 0.64 point, or 0.04%. Meanwhile, the Nasdaq Composite (COMP) surrendered 8.5 points, or 0.3%, to close slightly off its low of the day.

The CBOE Market Volatility Index (VIX) powered higher during the last 90 minutes of trading, gaining 2.3%, or 0.4 point. The momentum was not enough, however, to carry the index through the 16 level.

CLOSING SUMMARY - INDICES

CLOSING SUMMARY - NYSE AND NASDAQ

A Trader's Take :

"You can look into what Bernanke said (or how he said it) all you want," said Detrick, "but the reality is that after five straight up days, it won't take much for some sellers to take profits ... I think that is what we saw this afternoon. In the end, I don't think the Fed did anything to rock the boat here." Detrick concluded on a forward-looking note: "We've been waiting all week for this Fed announcement and now we can move on with trading since it's out of the way."

3 Things to Know About Today's Market :

  • The Federal Open Market Committee said the expiring "Operation Twist" program would essentially be re-booted with a fresh plan to purchase $45 billion* in Treasuries each month. For the first time, the central bank also provided (rather distant) targets that would flag the end of the current interest-rate environment. Interest rates will be held near zero until unemployment drops to 6.5%, with the caveat that inflationary projections cannot be higher than 2.5%.
  • On the fiscal-cliff front, the legislative and executive bodies remain at an impasse, with one House member quipping, "it's getting worse, not better." Reflecting on a Tuesday-evening call with President Obama, House Speaker John Boehner, R-Ohio, noted, "we got some serious differences."
  • Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) invested in itself, spending $131,000 per share on 9,200 Class A shares. The $1.2 billion investment was regarded favorably on the Street, as the shares rose more than 2% on the day.

Plus ... Pope Benedict XVI posted his first three Tweets to more than one million followers this morning. Lest ye cynics believe there was someone else behind the proverbial pen, a video was released showing the pontiff using an iPad to craft the messages.

Today's Top Tweet :

"ok now that that uncertainty is out of the way we are done with uncertainty. Oh... wait..."
@fundmyfund, 12:45 p.m.

5 Stocks We Were Watching Today :

  1. Short-term Netflix ( NFLX ) optimists pounced on weekly calls.
  2. Microsoft (MSFT) was upgraded to "buy" from "hold" and announced plans to ramp up production of its Surface tablet.
  3. Call buyers placed bets on a move higher in Pandora Media (P).
  4. While Wal-Mart ( WMT ) retreated amid news of an inquiry in India, aggressive call buyers scooped up out-of-the-money bets.
  5. Put buyers have taken a recent shine to Starbucks (SBUX) as the stock challenges technical resistance.

STOCKS - EARNINGS

Question of the Day :

Q : What happens to a stock's options when the stock splits?
A : When a stock splits, the options are adjusted accordingly, along with the option symbols. For example, if a stock splits two-for-one, the option holder will have twice as many options (at half the strike price). However, when the split is non-integral (3:2) or a reverse split (1:5), the resulting option contract may be more complicated. A three-for-two stock split of a stock trading at $60, for example, would leave holders of the 60 call with 40-strike calls each covering 150 shares of the underlying. In the case of a one-for-five reverse split, an options buyer holding one contract (worth 100 shares of the underlying) holds one contract (worth 20 shares each).

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

STOCKS - NOTABLE CALL ACTIVITY

STOCKS - NOTABLE PUT ACTIVITY

Commodities :

January oil futures moved up 98 cents today, or 1.1%, to settle at $86.77 per barrel. The yellow metal also gained ground in response to the Fed's continued commitment to accommodative monetary policy. February-dated gold futures closed at $1,717.90 per ounce, up $8.30, or 0.5%.

SCHAEFFER'S MARKET POSTURE

*Editorial note: This figure has been corrected from an earlier version.

At the end of every market day, the staff at Schaeffer's Investment Research reviews the trading day in detail, covering major events and key market developments. Don't miss this critical, timely and insightful report. If you enjoyed today's edition of Market Recap, sign up here for free daily delivery straight to your inbox.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.


This article appears in: Investing , Options

Referenced Stocks: FB , FSLR , HPQ , NFLX , WMT

Schaeffer's Investment Research

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