Monday April 25th 2011
by Jack Steiman www.SwingTradeOnline.com
The reason the market just isn't doing anything here is quite simple. Bernanke will be out with his statement on interest rates, the state of the economy, and inflation at 12:30 Eastern Time on Wednesday. The market will be hanging on his every word as well it should be. We all know that inflation is completely out of control. I don't think anyone would argue with that. The market is waiting to hear what he has to say with regards to future rate increases that many are now worried about due to this runaway inflation problem. After he makes his announcement he will then take on a question and answer session for the whole world to hear starting at 2:15 Eastern Time. It's going to be one of the greatest academy award winning talks of all time as he looks in the camera and tells us that inflation has increased some but it's not bad at all.
You’ll have to try hard not to laugh out loud, or cry out loud, whichever one seems to fit the moment. He'll also lie and tell us that things are improving quite a bit and maybe, just maybe, he can start to raise rates slowly. Nothing dramatic, just that our economy is rolling along well enough that he can now raise rates a tad. If he told the truth he'd say that inflation is like a dry wind fueling a wildfire, and that he needs to increase rates so a gallon of milk won’t cost 12$ in the near future. He won't tell the truth because, if he did, the stock market would take a nose dive into a deep pit. He can't afford to do that.
So stick around for Wednesday. It'll be entertainment at its very finest. It'll also be a most interesting day to see how the market responds to his fibs. In the end he'll do whatever it takes to play both sides. He'll try to convince everyone that a small increase in rates is not a bad thing for the market as it's a sign of economic health. Remember folks, all of his words are set up to protect the stock market. He'll do everything he can to dance between those rain drops in two short days.
The market is very interesting here as each stock is in its own world. It's not just a stock market where you can pick whatever you want and expect good results from a bullish perspective. Many stocks that had bad earnings reports are not doing well. Stocks such as The Goldman Sachs Group (GS) and Google Inc. (GOOG) continue to break down on an almost daily basis. They warned about the future growth and the stocks are getting hit. It's all over the place. On the other hand, if you reported good earning's you are being rewarded in a big way. If you're in a good pattern technically, and haven't yet reported, you too are doing well ahead of your report. The message is clear. Take your time and try to recognize strong patterns in play and go with those stocks rather than trying to catch weakness from stocks truly broken down on bad news on the earnings front. Also remember to watch those earnings dates as they are critical to your performance. You probably don't want to be holding too many if any plays at all into those reports due to the potential fallout that can occur. Be safe and play appropriately and you'll be fine. Find good bases and be very patient with them.
Starting out today we were very overbought on the short-term 60-minute charts across the board. They needed to unwind, and they have at least started that process. It is interesting that if tomorrow is relatively flat to down, those 60-minute charts will all have unwound pretty far down, which would be a nice set-up to the report coming out on Wednesday from the Bernanke. It does not guarantee an up market, but it's better to have a market unwound on those short-term charts just ahead of his statement and conference to follow almost immediately thereafter. Being overbought into the report wouldn't be best, which is why I also hope we're down a bit tomorrow, or at least no better than basically flat. Flat will continue the unwinding process. As the day closed today we were in much better shape on those short-term charts, but lower still would be ideal.
So the job now for everyone is patience. Something most of you don't like very much. If you want big-time action you can buy the super froth stocks which have been exploding up, and simply hold your nose. It's a way to play if you need action, but also know how bad things can get very quickly if you buy at the wrong moment. Very emotional to say the least, but if that's what you need, those stocks are definitely out there for you to play any time you want. We prefer a safer, more guarded approach, especially while still in this handle yet unresolved. Until we take out 2840 Nasdaq and 1344 S&P 500 they remain unresolved. So my best thinking is play the best bases and wait for them to make their moves over time. They can test your patience for sure, and I understand that. However, some of the very best plays come out of these base set-ups if you have the necessary patience to wait it out. I don't think it's a great idea to get too involved with froth, or extreme high beta, until this market can clear the levels listed above in this paragraph. Let things play out Wednesday. We'll know much more immediately thereafter.