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Stocks Notch Up Solid Gains to End the Week

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Stocks Notch Up Solid Gains to End the Week

Stocks started the US trading session with a consolidative tone as most of the volatility has seeped out of the market in the last two trading sessions. Implied volatility had climbed to its highest levels in the last three months ahead of the Federal Reserve meeting but since the decision was released, implied volatility has tumbled. The Fed has made it clear that they will continue to buoy riskier assets by keeping interest rates low for the foreseeable future. For the week, the S&P 500 index closed up 2.45% for the week, the Nasdaq closed up 2.6%, and the Dow was the best performer closing up 2.96% for the week.

Over the next two weeks the markets will likely fall into the holiday lulls were volume disappears. This period is usually marked as the Santa Claus rally where stocks gain on lackluster volume. Volume generally picks up on the first and second trading days of the New Year as new money works its way into riskier assets.

On the heels of this week’s Federal Reserve monetary policy meeting it was reported that the Fed holdings increased to more than 4 trillion in assets. The Federal Reserve’s balance sheet has passed $4 trillion for the first time after rising $14.1 billion this week to $4.01 trillion. The milestone comes as the central bank plans to scale back its bond-buying program to $75 billion a month from $85 billion. Prior to this third round of QE in September 2012, the central bank held $2.82 trillion in assets.

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The Dow Industrials closed off their highs but momentum increased into the close. The MACD (moving average convergence divergence) index generated a buy signal where the spread (the 12-day moving average minus the 26-day moving average) crossed above the 9-day moving average of the spread.

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