What Might Ben Bernanke Say This Afternoon
The market blasted higher yesterday and took out 1335 resistance. Volume levels were also high for most of the session, which is a great change of pace from Monday when volume was incredibly low. Volume has been light for most of April, but over the past week, volume picked up. In order for the bulls to keep the momentum going, average total volume must increase.
Admittedly, I was surprised to see a 1% move from the indices yesterday. With durable goods and the speech of Ben Bernanke following today’s FOMC gathering, I expected most investors to stay on the sidelines until this afternoon. But it appears that investors wanted to position themselves ahead of the meeting, and based on the action in stocks, dollar and bonds, they expect no action from the Fed and expect language that suggests a third round of free cash would be provided by the Fed (tax payer) if the U.S. economy were to need it.
Considering how controversial the second round of monetary stimulus was last year, I tend to doubt Ben Bernanke will unleash a third round today. But, I would not put another round off the table this year, and the market will want to see language from today’s report that another round is possible if not likely.
While I have my reservations about the current market rally, the indices managed new highs this week. And as long as Tuesday’s gain is held today, we should expect another rally for the market. Although volume was good last week Thursday and yesterday, it was good only in comparison to the rest of April, which was dismal. Despite the new highs I think the market could turn on a dime. Low volume price appreciation scares me because once the trend shifts – the selling happens fast and usually without warning.
But, much like I have advised since last July, we need to keep buying. Although the market looks perilous and the economic conditions bleak, we need to keep buying. At the end of the day, the free money dolled out by the Fed overrides all other fundamental metrics; and free money correlates to higher stocks. Until austerity or interest rates increase, the market is much more likely to continue moving higher.
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