U.S. Stock Market - Bernanke Bounce

Most major U.S. stock market averages rebounded today following yesterday’s thrashing, but despite bullish rhetoric from Fed Chairman Bernanke and several better than expected economic reports, today’s rebound failed to recoup even half of yesterday’s losses (on balance). For comparison purposes, Monday’s changes are included immediately below today’s changes as listed in this column.

In testimony before the Senate Banking Committee, Chairman Bernanke defended the Fed’s current accommodative monetary policy stance by saying that “In the current economic environment, the benefits of asset purchases are clear”. However, Mr. Bernanke also warned that the Fed’s stimulus actions could not completely offset the potential drag to the economy this year from current fiscal policy. Bernanke urged lawmakers to defuse the sharp automatic (sequester) spending cuts scheduled to kick in March 1^st.

In addition, Mr. Bernanke said that Fed policy was not fostering a bubble in the stock market. Despite 5-year recovery highs on most major market averages and several all-time record highs, the Chairman said “I don’t see much evidence of an equity bubble.”

Economic reports released today showed the value of U.S. homes rising in the final month of last year. The Federal Housing Finance Agency reported home prices rose 0.6% and the S&P/Case-Shiller home-price index climbed 0.2% in December. Commerce Department figures showed new-home sales rising 15.6% last month to an annual rate of 437,000, the highest mark since July 2008. And, the Conference Board said its index of consumer confidence climbed to 69.6 this month, which exceeded Wall Street analyst estimates centering on 62.3.

Here are today’s closing marks, with changes from Monday’s close:

Tuesday’s Changes                  

Dow Jones Industrial Average                      13,900.13          +115.96           +0.84%           

S&P 500 Index                                                1,496.94          +    9.09           +0.61%

NASDAQ Composite Index                             3,129.65          +  13.40           +0.43%           

Russell 2000 Index                                            900.05          +    4.21           +0.47%                       

And here are Monday’s losses (again) for comparison purposes:

                                                                                    Monday’s Changes                  

Dow Jones Industrial Average                     13,784.17         - 216.40           -1.55%           

S&P 500 Index                                                1,487.85          - 27.57             -1.85%           

NASDAQ Composite Index                             3,116.25          - 45.57             -1.44%           

Russell 2000 Index                                             895.84          - 20.32             -2.22%                       

For your review, the daily bar chart for the Silver ETF contract (symbol SLV) is attached below. As can be seen from this chart, a buy signal was triggered here today within my computer-based trading system. Gold and Silver prices were stand-out winners again today. Gold futures jumped by about $28/oz (+1.75%) and Silver futures advanced about $0.37/oz (+1.28%) as oversold technicals continued to support prices for the 3^rd straight day. Short-covering and improving sentiment also boosted prices today in this market.

Bottom Line: While modestly higher U.S. share prices are certainly possible again early tomorrow, I think sellers will soon dominate once again. Most major stock market averages are expected to soon violate Monday’s intra-day lows as the correction which began last week resumes on the downside. If we are to believe that the stock market is a “discounting mechanism”, then traders and investors should not be surprised to see positive Government economic reports even as the stock market slides south. Except to reiterate my forecast calling for at least a 10% correction on this leg, it makes little sense at this time to attempt to predict the date of the next major buying opportunity. I continue to believe that Gold/Silver mining shares will outperform the general market over the next several weeks (at least).

Silver ETF (symbol SLV) Daily Bar Chart with Computer-based Buy & Sell Signals