Bullish Comments; Wait Maybe Not

A very interesting start to today’s trading day.  As has been the case for over a week now, investors are continuing to focus a great deal of attention on the Federal Reserve’s next round of monetary stimulus, its size, and the likelihood of success from such actions.  In a speech delivered this morning before the bell, Chairman Ben Bernanke again signaled that additional monetary intervention is on the way and will probably be announced officially during the next FOMC meeting.  From the speech:

“There would appear -- all else being equal -- to be a case for further action.”

This commentary sent stock futures sharply higher, the U.S. Dollar to fresh lows, and supported additional bids in the gold market.  However, later in the speech, Chairman Bernanke stated the following:

“Nonconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used”

This tacit admission that Fed policies cannot solve all the ills present within the U.S. economy caused equities, the U.S. Dollar, and gold to all reverse courses is short order.  So after what appeared to be another bullish day for riskier asset classes has quickly turned to one that will probably see muted trading with a slightly bearish bias.  To me, this price action is a bit of a vindication of what I’ve been saying for the past couple of days.  With the markets moving up so far and so fast in anticipation of Fed intervention, the risk of disappointment in virtually any aspect of this stimulus program had grown so large that share prices are primed for correction.  And to extent, that’s exactly what you’re seeing today.  Whether or not this disappointment lasts is, of course, the larger question.

For the rest of the day I’ll be watching the price action of the U.S. Dollar Index.  Despite the drubbing the index has seen the last few days, it is still within striking distance of closing at or above trend line support seen on the weekly chart, which would be a VERY bullish development.  Conversely, such a signal would be quite concerning for equity and gold prices since the Dollar’s weakness has been a major tail wind for both markets for the past month.  As I laid out in my post entitled “Not for the Faint of Heart: Short Gold”, this is the exact scenario I’ve been looking to materialize.  Needless to say, the couple of days since that post have been a bit trying, but it appears my thesis is intact for now.

Until later.....