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Originally sent to clients Thursday, August 25.
There’s definitely a tint of optimism that he’ll pull a rabbit out of his hat.
Neither Mr. Bernanke nor officials close to him have said anything to encourage the speculation that he will succumb to pressure from markets to say something – anything – that suggests imminent Fed action.
– David Wessel, “Bernanke Is Unlikely To Promise New Action By The Fed”, The Wall Street Journal, August 25, A7
The market is in a state of high anticipation ahead of Ben Bernanke’s Jackson Hole speech tomorrow morning. Investors haven’t forgotten the rally he ignited last year.
Unfortunately, they are likely to be disappointed as Bernanke probably does not have the political capital to do enough right now to spur risk assets. Two weeks ago, the Fed fired one of its remaining bullets by changing the language in the Fed statement promising exceptionally low interest rates for “an extended period” to “at least through mid-2013” (FOMC Statement, August 9). Notably, however, three of the ten voting Fed governors dissented from the decision.
There was an odd little article on page A7 of today’s Wall Street Journal by David Wessel which I excerpted above. What is strange about it is the assured tone in which Wessel argues that Bernanke won’t be announcing anything big tomorrow. Wessel goes on to enumerate what Bernanke will talk about. That follows a similar story by Neil Irwin in yesterday’s Washington Post titled “Ben Won’t ‘Shock and Awe’ From Jackson Hole”. How are these reporters so sure? My gut feeling is that the Fed is getting word out in advance in order to tamp down market expectations.
Since the panic selling two weeks ago, markets have calmed down. NYSE Composite Volume has averaged 4.9 billion shares the last 10 trading days compared to 8.3 billion the previous 6 – a 41% drop.
1100 represents solid support on the S&P and we should expect traders to defend it if tested. 1200 – the top of the relief rally from last week – is now resistance.
The most important development this week has been the breakdown in the gold market. Gold had been on a tear since the beginning of July rising about $400. But it gave back $150 on heavy volume Tuesday and Wednesday.
While I think this correction has a ways to run, I do not think the bull market in gold is over. Clearly the market got ahead of itself but all of the trends that have propelled gold over the last few years remain in place.
Oppenheimer’s superb technician Carter Worth did a good job analyzing the technicals on Fast Money last Friday – when he suggested selling gold – and again Wednesday when he made the case for support at the 150 DMA. The attached chart of the GLD shows that the 150 DMA has provided solid support on a number of occasions over the last two years.
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