Why the rally today? The oil price declines are taking hold despite a passing hurricane and ongoing Iranian issues. The sell commodity plays and buy mainstream stocks is a trade that’s gaining more traction. Add a slightly better than expected ISM number, antsy trading desks and hedge funds then conditions are always ripe for a short squeeze.

As to the Fed? Well, a gazillion pundits, including me, had the Fed’s actions called right which means it was all a little too obvious.

One strange comment after the Fed decision was as follows:

“If the financial system unwinds, we could have a protracted period of slow growth,” per a Bloomberg report attributed to Mark Gertler, NYU economist and co-author with Fed Chairman Ben Bernanke. You figure that out.

Volume was fairly average in NYSE but high on the NASDAQ. Breadth was quite positive. [I’m still unsure of the accuracy of Yahoo/Finance column additions so I’ll include WSJ as well.]

So the US automakers are going to DC looking for a $50 billion bailout. Take a number please.

Remember we do get energy inventory data tomorrow.

This was an “out of the blue” rally. But traders must feel the Fed is doing its market repair work effectively. More likely, the drop in commodity prices eases inflationary pressures but for other reasons that isn’t good. Economic conditions globally are deteriorating weakening demand for raw materials, energy and well, stuff. The bad news is this will hurt earnings going forward. Some think there’s safety in tech but that remains to be seen.

The sell-off in commodities, should it continue can help the dollar rally as funds, what we have left of them, are repatriated to dollars. I’ve never thought the euro was such a great currency frankly especially when hip hop stars and Hollywood types demand to be paid in them.

As spectacular as today’s rally was let’s remember we’ve had plenty of these over the past several months which didn’t last. I must say I’m haunted by my own suggestion yesterday that we could have another strong August following a weak July–three in a row?

One bit of advice, there’s nothing wrong with having large cash positions when the Da Boyz are holding the dice.

Tomorrow we get energy inventories. Let’s see what happens.

Have a pleasant evening.

Disclaimer: Among other issues the ETF Digest maintains long or short positions in: MZZ, QID, QQQQ, IBB, XLV, RLX, SMN, IEF, PST, TLT, TBT, DBC, DEE, EWZ and RSX.

Last 5 posts by David Fry

• MARKET COMMENT October 22, 2009 DRIVE-THRU SOUP KITCHEN 2009 So, what the hell was yesterday about anyway? - October 22nd, 2009
• MARKET COMMENT October 20, 2009 TAKING A BREAK It was a pretty strange day. - October 20th, 2009
• MARKET COMMENT October 13, 2009 EARNINGS WORRY WARTS I just have a spooky feeling but then I always do. - October 13th, 2009
• MARKET COMMENT October 8, 2009 GETTING SOME ALTITUDE SICKNESS YET? - October 8th, 2009
• MARKET COMMENT October 2, 2009 REALITY BITES BULLS Economic reality is meeting bullish enthusiasm and the results are disappointing and upsetting. - October 2nd, 2009