What can I say?

At last tapering is here. In contrast to all I have been saying for months the beginning of tapering saw a huge spike up in the Dow and the S&P. Volume was up a little but the question remains. What happened? Do we throw theory out of the window? I am not a big fan of theory but you do need some kind of map to guide you when you tread in uncertain territory.

I have four ideas as to what was in the minds of traders:

• There is a stock market saw: "sell the rumor, buy the news" (and vise versa). There has been a worry about the beginning of "tapering" code word for the end of QE for some time. And who knows, that could have set the agenda for the pull back we have seen for the past couple of weeks.
• Bernanke, in his last statement as Fed chair also indicated that interest rates would stay at their low levels for longer than had been previously indicated, past the point when jobless fell to 6.5%. This could have given traders confidence. Low interest rates, high share prices.
•  The announcement had lots of good things to say about the economy so it might have boosted views about company performance
• It could be a bull trap. A false rise to lure in uncommitted investors so the smart money can cash in bigger profits on their holdings

You all know me, I have a deeply cynical and pessimistic heart so my guess goes to the fourth explanation. That together with another skeptical idea: they may have cut back but they are still pumping $75 billion per month into the maws of the banks. They should worry.

For myself I have been hit hard by good news in the UK. Strong economic results, especially a better than expected unemployment figure, meant that the £ bucked the $ trend and made a stunning move up. There is also the prospect of higher interst rates which would boost the pound. Since the bulk of my holdings is now in Dollars I suffered a very painful hit.

Yesterday the UK stock market was unimpressed by the news, or maybe they worry that interest rates will rise. Today the market was buoyed up by yesterday's move in the US and overnight follow through in Asia.

Today will give us a better idea of what will happen next, perhaps.

Hope you all have a happy holiday. I know I shall.