What Bernanke said on Wednesday (English Translation)

This is the English translation of what Bernanke said on Wednesday night:

Man, did I get scared when that market dropped 700 points in 4 days.  I thought it was over!  I will never talk again about tapering.  I will never bring it up anymore.  This economy really sucks.  What it told me was that I forced the economy up with monetary easing by printing money and buying treasuries; forcing everyone into the stock market and the minute I stop doing that, everybody is leaving the market and we could give back all of the 104% gain we have had in the market.  I didn't realize how lousy the economy is.  The stock market didn't go up because companies are doing well and top lines are getting better. The only reason the stock market went up was because I was forcing it up. I forced it up by printing money, and by printing money, I'm screwing all the little people and all the poor people at the supermarket [inflation]. From now I'll blame rising prices on demand, not inflation.

We have 2 great stories we can tell the American people.  As interest rates rise, just say its going up because the economy is doing well and the housing market is strong.  All we have to do is push the banks up next week and we will have a big run!

Quick market thoughts

The dollar is higher by taking the bid out of gold.  $GS can take the bid out, drop the gold down to push the dollar up.

They are doing this because the dollar was collapsing because every time Bernanke printed dollars to buy the bonds, it weakened the dollar.  He was printing so many of them, it was killing the dollar and causing the price of groceries to go up.

The dollar will collapse, but in the meantime short gold and mining stocks.

The story is the economy is hot because the housing industry is on fire.  The truth is applications are dropping on the vine.  Everyone was buying out of fear a while back as interest rates started up.  The banks will drive the stock market.  While the S&P is between 160 to 168, you can trade, but you can't invest.  

$GS reports next week, it has to go above 165 in order to get this market moving.  If they run the banks next week, then the market goes higher, if not, then it's all over.

The economy is not in good shape if you look at the GDP.  We are sitting at 1.8% growth.  The stock market is going well, but not the economy.  

If $XLF goes above $21, then buy it because the banks will be rigged.  If the banks are rigged, we can go higher till September.

Best bet for now is to do nothing until next Wednesday, then we will know based on what happens to $GS what the market will do.

Current Market Conditions

The market will continue to go down, it has no choice.  Probably down to 152 to 153 on the $SPY.  It should hold at the 10% correction, this should set us up for the next rally.  We had the same action to occur in May and November of last year.  The patterns should repeat as long as the fed continues to play its games in the market.  Don't miss it. (Click on image to enlarge)

Thursday I watched the market closely.  I noticed 5 attempts to break the 50 day moving average.  All 5 failed. Then on Friday morning about an hour before the market was set to open the S&P Futures were up over a point, but by the time the market opened, not only were all gains wiped out, the $SPY was down over a point on no news.  My only assumption is the market was expecting Ben Bernanke to issue a Friday statement that never came to pass.  Back in 08, the Fed was really good about making those Friday announcements that would send the market spiking.  Oddly enough most of those announcements always came on the 3rd Friday of the month (options expiration).

As for now, Bernanke is boxed in.  If he continues to buy treasuries to get the rates down below 2%, it will continue the inflation at the Supermarkets which is harming the poor and middle class which will eventually lead into harming the economy.  If Bernanke doesn't continue to buy treasuries, since the money that was printed was not used for the purposes they told us it would be used, we cannot sustain a 2.6% interest rate with a ~1.3% GDP and the market is headed for a good 10% to 20% correction.

We can't change what the clowns in Washington are doing, but we can still create wealth.  If the dollar starts to go down and the market continues to go with it...(both must happen Dollar Down AND Market Down, that's the key!)...gold and gold mining stocks will soar! If Bernanke decides to bring the rate down below 2%, the stock market will go up and inflation will be horrible.

The Fed Stock Market Bubble

There is a lot of talk about the stock market performance.  Lately, the market has been worried about the Feds 'tapering' off their buying plans which has buoyed the market.  The real problem is what happens when the Fed decides to sell all of the securities they have bought!

As the now, however, as long as the SPY hold over 164, the bull market should remain alive.  It is breaks 167, it should give the all clear signal, but it is breaks 164, it will be time to short the market.

The Fiscal Cliff

The House Republicans have worked themselves into quite a precarious situation. As it stands now, they are facing a lose lose situation.  It could be the death of their party.  Let's examine the possibilities:

1. If they agree with Obama, they lose a lot of credibility and a lot of Republicans will be left feeling alienated.

2. If they disagree with Obama and we go off the fiscal cliff, which was Bush's original plan, the very first bill that the Democrats should offer up is a bill to lower taxes back to todays level for those making less than $250,000 and reinstate the deductions the middle class currently enjoy.  Any congressman who votes against a bill which lowers taxes for 98% of his constituents is sure to lose their seat during the next election.  Even more so, the Democratic party will also become known as the party who wants to lower taxes and the Republican party will be cast as the party who wanted to keep taxes high.

3. Those making over $250,000 are looking at a lose lose situation either way.  Under Bush's plan, which was suppose to sunset 2 years ago, their taxes are going up.  If we go with the Democrats plan their taxes are going up. The thinking could very well be...."If my taxes are going up, let everybodies taxes go up too."

Feels like we lost the wind at our back

With 2 distribution days, the market is feeling like the wind has left the sails.  And then coupled with Apple's latest blunder with their maps application, and Apple's performance Friday, it's looking quite heavy also.  And now with the most recent PMI numbers coming out of China showing the seventh straight month of slow growth...like I said...the wind has appear to have left the sails.

Constructive stocks move in tight ranges.  Lately, we are seeing days were Apple is up 15, then the next day down 17, then the next day up 15.  In 3 weeks Apple will report the quarter, but I wonder what the forward guidance will look especially with the mapping fiasco.

Make of note the following.  We are still above the 50day moving averages, so keep the 401k in place until that thing breaks.  If it does break, you can always hide out in cash.

• Dow @ 13345, 50 day moving average is at 13,200, the breakout was at 13,340.  If we break down through that breakout (which at 10:50pm CST, it looks like we will) it will not be good news.
• S&P 50 day is at 1417, we closed @ 1440 and @ 1427 was the breakout
• Nasdaq breakout was at 3100, we are 3116, 3050 is the 50 day moving average

The transports and semiconductors are looking very weak.  If you are a Dow Theory student, you know that this usually means we are headed lower.

Gold and Silver are looking good and holding a 3 week high pattern which is bullish.  The metals will probably do well as the Fed will continue to print money to help this economy hobble along.  If the $SLV (Silver) breaks above $34.05 or the $GLD > $173.xx it's bullish for both.

Trading Stocks - Coulda, Woulda, Shoulda

If I could buy stocks in words, these are a few of the words that would buy stock in along with a few choice 4 letter words that I'm sure are said over and over again on Wall Street as well as everyday life.

The problem with coulda, woulda, and shoulda is that we never really know what would have happened if we bought/sold that stock because the game changes when you are in the security. I learned that lesson this afternoon.  Around 3pm, with an hour to go in the market, I had already successfully traded some call options on the Russell 2000.  This was actually my third trade in that security today.  I had bought some call options yesterday and held them overnight.  I failed to close my position near the open and ended up selling them at a loss.  The next trade during the day, I made up the loss, so I was feeling pretty good.  So, at 3pm, the market started looking weak and I said to myself, I will not trade this market.  However, as the Russell 2000 decided to drop I couldn't resist (I'll do a piece of discipline after I learn how to get some).  I thought that if I don't short this drop, I'm going to be telling myself, "I 'shoulda' shorted that drop and I saw it coming to".

So, I short the Russell using put options.  And as usual, the market decided to turn up on me.  I didn't want to sit overnight in the options because of the overnight time decay (and I also learned a few weeks ago that if the security starts to move against you, get out) I decided to get out and took a loss of about $1.40 per contract. This happened about 20 minutes after I made the trade.  40 minutes later when the market closed, I realized that if I had stayed in the position, I woulda have ended up making about $2.50 per contract!

After reflecting on this trade, I realized I did the right now by taking the loss, but I also realized something else.  If I hadn't made the trade, I would have priced the options at 3pm, then priced the options at the close and would have wrongly concluded if I had made the trade, I woulda have walked away with a handsome profit.  My thought process would have been, "Man, I 'shoulda' made that trade and I saw it coming, but noooo, I didn't have the guts to make the trade and walked away from a sure thing." When in actuality, I made the trade but the market was swinging wildly and stopped me out with a loss.

We can always look back on a chart and look at point A and point B and figure out what we should have done, but until there is skin in the game, you never really know....

....now if I had just stayed in the trade, I woulda done much better......   <---it never ends!!!