The markets soared on Tuesday's highly anticipated Fed day. The session began with a strong gap higher, right into the end-of-day trading from Friday. This gap exhausted the market temporarily, but market players still kept their eyes out on the larger prize: the afternoon Fed rate cut. Typical Fed days begin with upside, but Tuesday's was exceptional. Although stuck in a congestion zone throughout the first half of the morning, prices broke higher between 10:30-11:00 ET. A bull flag into about 12:30 ET with the 5-minute 20 sma as support led to a continuation move throughout the first half of the afternoon.

A glimpse into the market's initial bias ahead of the Fed's rate announcement began at 14:00 ET when the uptrend channel broke lower. The market had been widely prepared for a full point cut, but Sunday's 25 basis point cut ended up factored into the Fed's decision and resulted in a 75 basis point cut on Tuesday. The selling accelerated on the downside as initial disappointment hit, followed by a second reaction back to the 5-minute 20 sma resistance before moving for a third wave of reaction. This time it was once again on the downside, falling into 14:30 ET and the morning's lows. The 15-minute 200 sma zone also served as support.

Slightly lower lows created a trap pattern and the market rolled over into the final 90 minutes of trading, moving strongly higher into 15:00 ET and then basing at the highs before slowly continuing higher into the closing bell. The Dow Jones Ind. Ave. ($DJI) managed to rally a whopping 420.41 points, or 3.5%, on Tuesday. This was the strongest point gain since July 29, 2002. It closed at 12,392.66. Citigroup (C) led the way with an 11.22% gain, while American Intl (AIG) added 9.72% to its share price. GM, BAC, JPM, HD, and GE all gained more than 5%.

The S&P 500 ($SPX) rose 4.2% on Tuesday for a total of 54.14 points. It closed at 1,330.71. Goldman Sachs (GS) rose 16.3%, while Lehman Brothers Holdings (LEH) climbed 46.4%, and Bear Stearns (BSC) rose 22.9% on disputes by shareholders against the buyout by J.P. Morgan Chase (JPM). The Nasdaq Composite ($COMPX) performed equally well with a 4.2% gain, amounting to 91.25 points. It closed at 2,268.26. Top performers included Sepracor Inc. (SEPR) (+9.91%), UAL Corp (UAUA) (+7.94%), ahd Amazon (AMZN) (+7.77%).

The action on Tuesday leaves the market favoring more upside in the immediate future. The Nasdaq has rounded off at the daily lows and follow-through is likely over the next several days. I am not expecting moves like Tuesday, but will be very cautious on the short side. 1361.5 is ES daily resistance. 1800 and 1888.5 are NQ resistance levels to watch out for.

Dow Jones Industrial Average ($DJI)


S&P 500 ($SPX)


Nasdaq Composite ($COMPX)


Notice: I will be taking an extended weekend with my family so I will not be releasing a column tomorrow evening. The Daily Market Action Letter will resume on Monday. Have a wonderful weekend!

Toni Hansen is President and Co-founder of the Bastiat Group, Inc., and runs the popular Trading From Main Street. She can be reached at Toni@tradingfrommainstreet.com.