Bernanke Speaks, the Market Falls

About that morning rally…it looks like I spoke too soon. Or rather, it was Ben Bernanke who did the speaking. Once the Fed Chairman started his testimony before the Senate Banking Committee, the Dow immediately started losing ground. By noon, we were down close to 50 points. (I really wish these guys gave their talks after the bell.)

To reiterate what I said yesterday, what we need to see is a strong intra-day turnaround. What does that mean? It means we need to see a trading day begin very slowly, then suddenly see the bulls come charging in and push up prices. The buying will need to build during the rest of the day and into the crucial final 30 minutes. Once that happens, then more investors will be encouraged to come off the sidelines.

But even then, we’re still not done. That prior low will need to be “tested” one more time, just to make sure that it’s indeed the ultimate low. I know it’s a bizarre process but that’s how these market bottoms work. Once we’re in the clear, I think the market can begin a health run.

What Bernanke said today is that some major economic stimulus was needed. He said, “By supporting public and private spending, the fiscal package should provide a boost to demand and production over the next two years as well as mitigate the overall loss of employment and income that would otherwise occur.” Let’s hope he’s right.

The real interesting thing to watch will be rising Treasury yields thanks to our fiscal irresponsibility. Since many mortgages are tied to Treasury bonds and notes, this could hurt the housing market even more. In fact, we just got a report showing that January sales of previously owned homes fell twice as much as economists expected. Even the White House economic advisor Christina Romer said that first-quarter output is looking “pretty lousy.” Gee, thanks for that news flash!

The currency market is still in denial about the fate of the dollar. The greenback actually rose today against several major currencies. Our strategy continues to focus on areas of the market that will benefit from a weak and falling dollar. Once the dollar turns, it could turn into a rout.

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