I stared at the computer screen for a good 10 minutes before beginning to write this piece. After all that time, I figured I’d get to writing and still cannot think of a better beginning than “I stared at the computer screen for a good 10 minutes before beginning to write this piece.” I’ve been trading full-time for almost 15 years; in that time, I am hard-pressed to think of a more anticipated speech by a Federal Reserve chairman than the one that the current chairman of the Fed (Ben Bernanke) is scheduled to deliver today. Backing up a step, it’s important to note for those who do not know that representatives of the Federal Reserve as well as top economists much less central bank governors from around the world gather in Jackson Hole, Wyoming annually. Since 1982, the consortium aims to speak about the major issues affecting the economy and monetarily policy. What makes this speech so fascinating is the seeming lack of unity by the governors of the Federal Reserve as well as uncertainty about the economic outlook expressed by none other than Bernanke himself at a very divisive August 10 policy meeting. What makes it so uncertain is that not only does anybody have any guess as to whether this particular conference will be more financial-related or rodeo-related, nobody can guess what Bernanke can say. Furthermore, it is very difficult to parse how the markets would react to anything Bernanke says. Alas, this is our job as day traders. So, let me try to guess after having spent some time studying this. Basically, the Federal Reserve, as noted, is in disarray right now with a lack of confidence by the markets thus putting a tremendous amount of pressure on Bernanke to say something of consequence today- and he knows it. As opposed to former Fed Chairman Greenspan’s cryptic language, Bernanke has been relatively plain and direct- except in the last two months. Thus, it is unlikely anything decisive will come of the speech since it does not appear as if the Fed wants to commence a second quantitative easing program, they are no sure what economic conditions should trigger such actions, nor do they know exactly what the actions should be. Ergo, if Bernanke says something bad, the markets will view it negatively. If he says something good, many people won’t believe him. If he announces a new quantitative easing program, the markets would cheer and then groan as hope of the Fed being of aid will likely turn to despair when the realization sets in that the first program failed thus the seeds of doubt would be sown for a 2nd. Thus, what Bernanke will likely aim to do today is attempt to put to bed the notion that the Fed is paralyzed regarding the tools needed to bring the economy back and put a positive spin on the disagreement at the Fed. He is going to cop to recent weakness in the economic data, justify keeping rates low yet try not to sound desperate or panicked. Thus, he will probably use themes of uncertainty, stress slow growth, stress the Fed is ready to react to whatever happens…in other words, he’ll be vague while attempting to not sound vague in clarifying a dampening view of the economy. If this is the case, the speech will cause choppiness, but no real movement. But again, should he venture off much more positive, look for an immediate pop followed by an immediate sell-off on disbelief and if he announces something dramatically worse, look for a sell-off…which will likely be followed by a snap back as it shows something definitive (even if negative) going on. Overall, after all of this typing and what-if stuff, the GDP data truly set a nice tone and Bernanke should be able to straddle the line for the day at least.
Markets in Asia were generally higher overnight with Tokyo up 1%. The European bourses are up very nicely to the tune of ½% to ¾% across the board. The GDP revision came out nicely with the number coming in at 1.6% vs 1.3% estimate, but the whisper was much worse so the hint that things are more stable than many thought have sparked some sharp reversals this morning. The dollar is up nicely now against every major currency with oil marginally higher as well. Futures are trading ahead sharply with yesterday’s losses eradicated as of this writing. Look for a little selling into the gains to start the day ahead of Michigan Sentiment Revision due out at 9:55AM ET (70.0) and Bernanke’s speech at 10AM. The tone of the speech will set the tone for the rest of the day but as noted above will likely be constructive. With the Fed’s Bullard on CNBC this morning chatting already about tiny baby quantitative easing steps, the stage is set. At that point, the rally should resume and then stocks will peter out from there as traders head out to enjoy the 85 degree sunny weather in Metropolis.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
PAR- received a $27/share cash offer from HPQ
MCRS- decent earnings
ARST- closed near a high after announcing it was putting itself up for sale
FIRE- closed near a high in a sympathy move with ARST
MMYT- closed near a high
NZ- great earnings
FRO- decent earnings
TIF- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
JCG- terrible earnings
OVTI- poor earnings
IRF- poor earnings outlook
DVOX- closed near a low after posting terrible earnings
CREE- closed near a low despite an upgrade by Morgan Stanley
IBM- closed near a low
GS- closed near a low
AMZN- closed near a low
AAPL- closed on a low
CRM- closed near a low
BIDU- closed near a low
CFFN- closed near a new trend low
IMGN- received refuse to file letter from FDA for T-DM1
Earnings:
FRI AUG 27 BEFORE
FRO TIF
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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