Wednesday, May 22, 2013

Market Cheers Bernanke Comments

Many investors were concerned about today's testimony before Congress by Fed Chairman Bernanke.  Most figured his comments about how soon the Fed would end its quantitative easing program would unnerve the market and stocks could be vulnerable to a selloff.

But in this market, any news is good news.  Bernanke reiterated that the decision to slow purchases would be dependent on incoming economic data.  He said that he believes the Fed could also allow current assets on its balance sheet to run off (or mature) without having to engage in outright sales.  This might be less disruptive to markets.  Although the market is fading as I write this post, the Dow was up more than 100 points after Bernanke's comments were televised.

There has also been quite a bit of volatility in the bond markets.  The 10-year yield started off the day around the 1.90% level, but recently spiked back above the 2.00% level.  So it should be interesting to see where the stock and bond markets settle out by the close.  Stocks are certainly short-term overbought, but have been this way for roughly a week now.

In other economic news, April existing home sales hit a rate of 4.97 million units which is up from last month's rate of 4.94 million units.  Homebuilders are rallying on the data.

Asian markets were mostly lower overnight.  But Japan rose again after the latest Bank of Japan meeting where the central bank noted that the "economy has begun to pick up".

Europe's markets are mixed today.  The Bank of England saw a vote on maintaining its asset purchase program split with 3 members in favor and 3 members opposed to it.

The dollar is higher this morning, and commodities are mixed.  But trading is volatile and prices are moving around quickly.  Gold was near $1400 earlier but has given back $25.  And oil prices are back below $95.

Trading comment: I know it has been a losing game to look for a market pause, but the recent action has caused the indexes to become highly extended vs. their 50-day and 200-day moving averages.  The SPX hit the 1675 level today, and I do think we should see some consolidation in the averages before another run to the 1700 level.  In the meantime we continue to find individual situations where stocks have pulled back to offer attractive entry points. 


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