Easy Does it!

George Brooks |

Ben Bernanke Fed Reserve Q2Brooksie’s Daily Stock Market blog: An edge before the open.

Thursday, August 24, 2011       9:12 am EDT

DJIA: 11,320.71    S&P 500: 1177.60

If the Jackson Hole meeting and a speech by Fed Chief Bernanke were not taking place this week, I don’t think we would be having this rally.  That said, be careful.

It looks like a double bottom, the first bottom occurred August 9 on very heavy volume, kind of a “flush,” where buyers dug in their cleats and said “Bring it !”

That was followed  by a four day 900-point pop in the DJIA, a 750-point sell off to bottom #2 and the current rebound.

All very pretty.

Here’s my dilemma.

“Convention” tells me, “Close your eyes and buy, we have a double bottom !”

My instincts tell me, “Whoa !  Isn’t this a bit too cut and dried ? The market needs to do more work before turning up. What’s more, I see the odds of a drop below DJIA 10,000 as a smidge better than 50-50.



Money managers have to be buying,  they cannot afford to be sitting on too much cash, they have to hedge bets just in case Bernanke does announce a Fed-based stimulus program.

While last’s year’s QE2 didn’t  produce a sizzling economy, one must give pause to consider what would have happened without QE2.

What can go wrong ?

Europe, for one.  The sovereign debt issues there simply defy a solution. From time to time, the crisis there rattles U.S. markets here. For the moment we are in the eye of the storm.

The greatest risk (short-term) is that Fed Chief Bernanke may have little to offer this week, prompting traders to bail out.  Coupled with any bad news, this disappointment could  jeopardize the double bottom and set the stage for a plunge below DJIA 10,000 (S&P 500 1100).

What can surprise?

The consensus is strong for a second recession or something painfully close.

That may not happen.  The current slide in the economy may run out of steam, yielding to a gradual rebound  that gains traction early next year. If Bernanke does NOT see the need for additional stimulus at this time, it should be viewed as a positive , i.e. it is not needed.

George Brooks

......................................................................

The writer of Brooksie’s Daily Stock Market blog, George Brooks,  is not registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
APWC Asia Pacific Wire & Cable Corporation Limited 3.00 0.14 4.79 5,470

Comments

Emerging Growth

Reliq Health Technologies Inc.

Moseda Technologies Inc provides mobile and IT cloud computing to increase operational efficiency and security. It develops SmartFleet, a solution designed for commercial use, as well as SmartCare, a mHealth…

Private Markets

MyForce, Inc.

As parents, we constantly worry about the safety of our loved ones. The media bombards us with incidents from across the nation school shootings, frequent assaults on campuses, and crimes…

WayBetter

The spark hit Jamie when he saw co-workers competing to lose weight. Instead of pizzas and subs, they were eating salads and jogging along the river. Some were sneakily leaving…