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Ben Bernanke Trying To Inflate The Stock Market....

Stock-Markets / Stock Markets 2010 Nov 04, 2010 - 02:57 AM GMT

By: Jack_Steiman

Stock-Markets

sent that message loud and clear today. He wants the bond market to die. He wants the dollar to die, and he wants the stock market to rise in an effort to keep the economy on the road to recovery. Without a dead dollar and without a strong bond market, money won't rotate in to equities. If money rolls in to equities then the stock market climbs giving people more money to throw back in to the economy. A simple equation really, and he's working hard to make it all come true. He will flood cash in to the system. He said he'll do whatever it takes to keep our economy humming along.


The market has to love news like that. How can it not, really. If you know money is going to be forced down your throat you go with it. You say ok, do it. I know it will make me healthier, so go for it. He is going for it, folks, in a big way, and promising he's not done if this new influx doesn't get the job done. He's working for the stock market because he knows that's the economy. With a friend like that on its side, it's hard to imagine this market doing anything but going higher overall for some time to come. Always pullback's from overbought and other news events, but the trend will likely continue higher overall. The number one money man has a job to do. To keep the economy rocking higher. He's pulling out all the tricks here. Don't fight the money machine.

The market hasn't gone anywhere the past several weeks with the S&P 500 hanging around 1190 most days. It started with a move higher today, once again, but it didn't hold very long. It fluctuated back and forth in a narrow range as everyone anxiously waited for the fed to make his announcement at 2:15 eastern time. Once it came out things sold off pretty hard, but it didn't take long before it bounced back. It was almost a guarantee knee jerk sell the news situation, but once the big money realized what his words meant, it was a race back up allowing the market to close with some small gains.

Overbought not mattering one bit for now. It will at some point, and we'll get a strong move lower to reset things. The market told us today it's more interested in the news that came from the mouth of Mr. Bernanke and thus it seems to want higher prices overall for now and therefore the reason why we saw the late day recovery. Just remember we're still very overbought with comeback we saw late day.

The financials keep teetering on the edge of total breakdown, but somehow they're holding up just when it seems they're cooked. I keep writing about them because of their extreme importance to this market. They're holding up, but if they break lower in a big way, there is no way this market will continue higher with force. In fact, it's likely to end the bull run. This tells me, based on what I'm seeing in the market, they'll at least hold up, even if they never truly break out. The market can hang in well if the financials don't explode higher. The market simply needs for them to not break down. This area of the market is the only huge red flag out there. Again, only red because it's teetering on the edge, but for now there's nothing broken.

The Nasdaq cleared the April highs today and the S&P 500 broke out of a three week triangle. Need I say more? It is what it is. These events occurring in the face of overbought conditions on the Nasdaq. The PowerShares QQQ (QQQQ) at extreme levels of overbought with RSI's nearing 80. The market doesn't care. I said all along I thought the S&P 500 would make its measurement at 1220. 1130 neck line. 1040 head. 90 points above 1130, thus, 1220. I think this level is likely soon. Ultimately, I think we'll go higher than that with the normal pullback's along the way. As long as the fed is inflating the system with cash, and killing the bond market and the dollar, the stock market will literally be forced higher.

We hate buying at overbought but there are plays setting up all over again. We'll look for them to go out shortly, and not worry too much about overbought, allowing for pullback's to be a normal part of the equation. It would be a lot more fun and easier to get a pullback here, but we may not see much in terms of selling due to the actions of fed Bernanke today. We may remain more overbought for quite some time with only small selling episodes.

Again, not even close to my favorite way to play, but we must play the cards we're dealt. Inflation is now the new happy word for this market sadly. Expect your food, etc., to keep rising, but I also think the market is going to continue its up trend for quite some time longer overall. One day at a time.

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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