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August 29, 2006

Measuring the Market by the Minutes

A cardinal rule for traders trying to get a read on the mood of the market is to observe how the market reacts to news, rather than analyze news alone. Shortly after midday, the FOMC released its minutes for its August 8 conclave which revealed a sentiment among board members that, despite the 9-1 vote in favor of a pause, the decision to hold rates steady versus institute another hike was a borderline call. The point that apparently gave members reservation was continued concern over inflation.

Such verbiage could easily be interpreted as hawkish, but the market didn't see it that way, probably due to the 8-vote margin. Post release, with traders convinced once again that the Fed is done, equities garnered approximate one percent rallies and exited the day on a high note. What can be gathered from today's reaction is that stocks were prepared to rally, but traders were anxious ahead of the release of minutes. Since the Fed did not sound significantly more hawkish than on August 8, buyers got their green light.

Silver popped about 2% for no discernable reason. It would be hasty to credit the FOMC minutes for the strength because 1) gold did not participate and 2) silver was already rallying ahead of the minutes release. Silver has been quite choppy in recent weeks, and I suspect it will continue to behave as such until it finds a foothold from which to launch its next major rally, so let's just write today's action off to volatility.

Unfortunately, I suspect we've seen the excitement for the week. On the other hand, making near-term definitive statements has a way of enticing the market gods to prove one wrong, so let's hope this case is no exception.

Disclosure: None


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