What might Bernanke's speech have said or implied that triggered the market response that we witnessed on Friday? How about: Don't fight the Fed...The economy is anemic, and the outlook might be uncertain-to-poor, but the Fed will pump, buy, and do whatever it takes to turn it around. The Fed will keep short rates at ZERO for a long time, and force companies and investors to take risk....
If anything expressed above proves reasonable and accurate, the risk trade is where investors have to be make any return at all! Cash will continue to be trash and treated as such indefinitely. It is as if Bernanke held up a big sign that says: "Buy stocks, buy gold, buy commodities, buy houses, and, perhaps as a corollary, SELL BONDS -- and take the money and put it into riskier markets...
With the foregoing in mind, let's have another look at my updated comparison chart of Bonds and Gold, two markets that could provide the most insightful reaction to the GDP data and to Bernanke's speech, are gold and 10-year bonds. Purely from a price perspective, the bond market is showing signs of exhaustion since its mid-Aug peak, while gold prices appear poised to continue higher towards a retest of the June highs at $1263/65. If my perceptions about the technical set up reflect "reality," then my sense is that Bernanke is "desperate" to create inflation, which argues for higher gold, and lower bond prices ahead.
I don't know exactly "why" bonds are weak and gold is firm, but I do know that the technical set-up coming into today's session suggested that such a scenario was increasingly likely. Right now, bonds appear to be heading for a test of the rising 50 DMA at 124-15, which amounts to another 0.50% on the downside. If the equity indices strengthened into Friday's close, we could see the bonds at 124-15 before the end of the day.
Mike Paulenoff is the co-author of The Business-One Irwin Guide to the Futures Markets (with Stanley Kroll). He was formerly the chief on-air market consultant and strategist for JAGfn, a live, daily 8-hour financial market webcast and cable TV show, and was President of MJ Capital Inc., a market analysis and trading firm which advised clients involved in the financial futures and commodity markets. Mike's real-time ETF trading diary and chart analysis can be found at MPTrader.com (click for a free trial).
