Bernanke Thoroughly “Disappoints” At Jackson Hole

Though most analysts expected a huge drop today after Bernanke was to disappoint the market, the selloff after Bernanke initially said that no new easing was planned for the economy lasted for a whopping 30 minutes and once again the contrarian mindset has paid off. A rally after and during Jackson Hole speech was telegraphed by the copious amounts of negative expectations for the conference. Logically, a rally is the only outcome that makes sense since the market cannot be “disappointed” by anything Bernanke says when every analyst has set the bar as low as possible, predicting everything from let-downs to a double-dip recession to follow the conference.

Copper had given us an early indication of more short term upside as despite the choppy volatility in the stock market, copper had held up well and had actually tagged the 20 MA for a 2% gain on Thursday while the overall market was slammed. Copper is now above the 20 MA and though there is good resistance at $4.13 which may hold strong, the strength in the metal should translate over to the equity market.

Another more recent example of when bearishness was high and puts were heavily outweighing calls was the downturn in June that preceded the epic Independence Day rally. In this scenario copper traded flat to positive while the market looked close to breaking the 200 MA. The strength in copper was a leading indicator for the 100 point rally and the similarities between that move and the one we are currently in are striking.

In both cases so far, bearishness has been off of the charts, copper has held up, and the selloff came before and slightly after a Fed meeting but never made a new low. Also, the June 27th – July 1st
rally happened on low volume and came before the shortened holiday week. The next week of trading will be the week leading into Labor Day. Volume is bound to be low, and we should expect the market to float higher especially later in the week.

The 60 minute chart shows some very nice action as well. A new pivot low has been put in on a pierce of $114 and towards the end of the day, the SPY consolidated in a bullish manner above the 20 MA. The best part about this 60 minute chart is how the market did not get extended enough to reach double top at Thursday’s opening high, which was also a topping tail. The reason why this is bullish is because since the market is now consolidating beneath support, that topping tail now becomes minor resistance and should not be shorted, even for a scalp.

Regarding Irene, I wouldn’t be surprised to see a lower open Monday on a knee jerk reaction however my views on the effects of the Hurricane on the market are actually positive. Try an experiment sometime this weekend – ask one of your friends who does not follow stocks if a hurricane in Manhattan would be good or bad for the stock market. The way I am leaning is the opposite of what their answer will be. Why? Because the fund managers and bankers are staying dry in Florida celebrating Labor Day weekend early which strengthens the case for lighter volume this week.

In the stock market, when the effects of a certain event are obvious to the point where any Joe on the street can tell you the logical outcome, the way those events play out rarely favors the no-brainer scenario. There has been a lot of downside pumping since the SPY bottomed at $110 and the market has not made a new since. In fact it has made two higher lows and as long as that trend stays intact, I will continue to favor the upside.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

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