Markets Surge on Bernanke Q&A Comments

Markets appeared to have a tough time knowing what to make of yesterday’s Fed minutes as the S&P bounced around in a wide range following the release. The FOMC appeared to tweak its communication, more prominently pointing to the need for greater improvement in the labor market before potential QE taper. That tone shift appeared to be bullish, but the S&P faded after an early spike. After the close, though, Chairman Ben Bernanke participated in an open Q&A and struck a decidedly dovish tone, adding fuel to the move. He made it clear the “easy money” wasn’t going anywhere anytime soon, and S&P futures are up 17-19 handles.

Most of Europe is up over 1% and China had its second consecutive strong day as the PBOC looks like it is going to lend some help. Japan wasn’t as powerful overnight, but the move there in the past six weeks off the lows has already rewarded dip buyers.

The S&P is now just a stone’s throw away from the May 22nd intraday high of 1687. Traders who haven’t believed in this bounce may come in frustrated today that they missed some really compelling entries. There were technical signals that traders could have gotten back involved to the long-side.

Sign #1: When the S&P reclaimed the 100-day back on 6/25 around 1588 (tactical entry)his was after our new pivot low at 1560.

Sign #2: Five days of digestion above 1600ish showed commitment to the move off the lows.

Sign#3: S&P reclaimed the 50-day moving average on July 5th around 1627ish, setting the market back in upside motion. This was a spot to potentially re-enter longs or add to them after the market proved it was more than an oversold bounce into the end of the quarter.

Snapping back even stronger than the market are the precious metals and bonds. With the Fed now appearing less keen on a quick exit from QE, those assets are due for a snap-back, an opinion T3 Live Editor-in-Chief John Darsie tweeted in the immediate aftermath of yesterday’s Fed minutes. GLD and SLV are up 2.5% and 3.9%, respectively, overnight, while the 20+ Year Bond ETF (TLT) is up 1.1%.

Besides just looking at levels on the S&P there were other bullish signs that we have been pointing out. The small-cap Russell 2000 index traded back to historic highs. It’s a sign of healthy risk appetite when small caps are leading the charge.

Tech was also leading the way, another sign of healthy risk appetite. Our list of go-to momentum names from the Price Point Sheet and Off the Charts have been acting frisky to the upside. If you turned off the TV and drowned out the noise, there’s been a lot to like technically and a lot to participate in on multiple time frames.

The frustrating part has been the recent speed. After four days higher from the 50-day, it was hard to put on excessive risk into the Fed minutes as it felt like a rest could be due. Markets held in yesterday, and the signs from the market leadership were strong and even laggard groups were catching up a bit.

So what do we do today after this big gap up? It all depends on your time frame. If you have multiple positions on in a swing trading approach you could trim and trail to stay with some. If you come in flat, perhaps wait 15-30 minutes and see if there is a pivot to trade long against, or wait those same 15-30 minutes to see if there is a pivot high to short/fade against. These big gap ups are tricky and sometimes hard to handle.

What you should not do is revenge trade, hit keys out of frustration and lose money for unfortunate reasons. If you’ve been rolling up shorts with opinions, I hope you’re solvent enough to trade out of it and figure out a way to work on your process.

I come in today pretty flat footed in my active and swing accounts, so I will take today slow.

Disclosure: Scott Redler is Long: BAC, TBT.

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