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Wednesday, November 02, 2011

Big Brother's "protection"

After listening to Ben Bernanke's press conference today, it is my opinion that as long as the Fed (Big Brother) stands ready to add more stimulus if "conditions warrant" (as they've repeatedly said), the markets (banks) will continue to add risk and accumulate shares in equities and commodities...barring, or course, any further "financial crisis rumours" from Europe, which could temporarily disrupt such market mandate.

I noticed that Mr. Bernanke failed to speak of any increased debt that consumers and businesses may have added in their recent spending increases and by what percentage their debt loads have increased as a result...obviously this would have negatively impacted such dovish news and may have been left out deliberately...however, I'll give him the benefit of the doubt and assume that he simply forgot to mention this.

As for his statement that individuals can make more by investing their money in the markets than by saving, I would ask him for a show of hands of all people in the United States who actually have savings left over after paying their monthly expenses and credit debts...perhaps he's assuming that those with a bit of extra money will, in desperation, risk their savings and entrust them into the hands of brokers/bankers to magically produce an endless supply of investment income...after all, if brokers/bankers are going to be protected with the elixir of future stimulus, why not?

So, in keeping with this positive assumption, I wold look for the YM, ES, NQ & TF to embrace and confirm that view by making a higher swing high on their Daily charts (see chartgrid below), while not violating their lows made on November 1st...this would re-enforce the establishment of a new uptrend from the October lows. Otherwise, if the November 1st lows are broken, this would call into question the market's ability to advance at the current levels...it also calls into question the markets' belief in what Mr. Bernanke has said. We can see a H&S formation developing from October 24th, with the neckline around the November 1st lows...should this be broken and held with conviction, then the equity markets will fall back into their large trading range below.

N.B. In a perfect world, that is what the above dovish scenario represents...do your own due diligence before leaping in with both feet.