Profit taking sets in Wednesday despite a bullish outlook from the FOMC. The Dow ($INDU) fell 81.32 points to a level of 9,748.55. The S&P 500 ($SPX) lost 10.79 points to 1,060.87. The Nasdaq ($COMPQ) gave up 14.88 points to 2,131.42. Volume was a bit stronger on the session with the NYSE trading 1.32 billion shares and the Naz turning over 2.72 billion shares. Market breadth was negative on the session by an 11-to-20 and 10-to-16 margin on the Big Board and Naz respectively.

Stocks rallied most the session up and through the FOMC statement, but the last 90 minutes of trading saw strong profit taking. Intraday, the Dow hit a high of 9,918, than preceded to lose 170 points from this high. It is not uncommon to see traders sell into highly anticipated news events like the FOMC statement. This is especially true following a huge run up in equity prices like we have seen in the third quarter.

Traders would have a hard time interpreting the FOMC statement as anything other than optimistic. The committee stated that economic activity has "picked up" compared with the statement in the prior meeting that the economy was "leveling out." The Fed did state it would slow its purchase of mortgage debt, which would allow the program to extend through March. The Fed feels that inflation remains subdued and should remain so for some time. This news led to further gains immediately following the statement, but eventually, traders decided now was a good time to take some money off the table.

In other positive news Wednesday, mortgage applications soared by nearly 13 percent this past week as mortgage rates moved back below 5.0 percent for the first time since May. The Fed did note in its statement that this sector of the economy was showing improvement from the severe problems it saw during the recession. The Fed does realize that there are still plenty of risks to overcome for the economy to return to normal growth, but at least we are on the right track.

Ford (F) provided bullish news Wednesday as well when the automaker had positive things to say about the sector. Ford's CEO stated that the U.S. auto market was looking good and that vehicle sales were expected to increase as the economy improved. Ford shares rallied five percent on the news to a price of $7.36. Remember that less than a year ago, the stock hit a low of $1.01 a share.

Another strong moving stock today was General Mills (GIS). The company raised its full year forecast well above current estimates and also easily bested earnings results for its fiscal first quarter. This news helped push GIS shares higher by 4.76 percent to a price of $63.78.

Now that the Fed has spoken, traders will be looking forward to third quarter earnings. At the same time, there are some key economic reports due out the next few session including jobless claims, existing home sales, new home sales, durable goods orders and consumer sentiment.

Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site