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The odds are that Fed chairman Bernanke will talk up the markets tomorrow and Wednesday--and that the short-term selling will resume on Thursday
02/25/2013 3:12 pm EST
Last week leaked reports on Bernanke’s testimony—who knows if they’re accurate, of course—had the Fed chairman downplaying worries that the Fed’s monthly buying of $85 billion in Treasuries and mortgage-backed assets would lead to an asset bubble. Bernanke, these reports say, will tell Congress that he doesn’t see any reason that the Fed will have to end its buying program soon and that any end to the program will wait until there’s evidence that the economy is growing at a solid pace and that unemployment is headed below 7%.
The possibility that the Fed would end its asset buying program early—raised in comments by some Fed members in the minutes from the Federal Reserve’s Open Market Committee’s January meeting—was enough to send stocks tumbling after the release of the minutes on February 20.
Comments and leaked comments from Fed sources saying that the Fed was committed to staying the course helped stabilize U.S. stocks in the last part of the week
So why watch out for what the markets might do after Bernanke speaks?
Because if you were inclined to sell this market short, you’d certainly wait to see what Bernanke says on Tuesday (and maybe Wednesday.) No point in going short only to see the Fed chairman talk the markets up.
Once the dog and pony show is over, however, shorts will have a clear field for their bets that the U.S. market is ready for a correction. And if Bernanke does talk stocks up tomorrow and Wednesday that could also be enough to create a selling opportunity for any trader or investor worried about the effects of the sequester that seems almost certain to go into effect on March 1.
Whatever worries there were at the beginning of last week about government spending cuts slowing an already none-to-robust U.S. economy will have the floor as soon as Bernanke is done with it.
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