Keystone's Wake Up 4-27-11

The run up yesterday is testimony to the uber bullishness in place now.  VIX remains low although it did stealthily move from under 15.40 to over 15.60 in the last 45 minutes of trading. CPC put/call moved flat yesterday between 0.6 and 0.8 for almost the entire day; there is no fear in these markets, traders expect a continued up move.

This means that the consensus of traders expect the Chairman to do a simple tap dance all afternoon and not change any direction or make any moves, or even hints at moves, at all.  This means the upside should be limited and the greater risk is to the downside.

Also, purely technical-wise, some traders had short protection in place with a 1344 stop and once that level was hit, a short-covering rally popped the SPX from the 1343 level to almost tag 1350 in only 16 minutes; a half percent rise in the index in a heartbeat. The SPX 1340 gap fill finally occurred after preaching about that for the last two months. All gap fills are now lower.  This does not mean the SPX cannot go up, it simply means that more of a magnetic force will want to pull price towards the empty gaps that now only exist below.

No POMO pump this morning since the FOMC will be performing the verbal cheerleading all day long.  POMO pumps are back for Thursday and Friday mornings. 

For Chairman Bernanke’s virgin press conference, the markets have priced in a steady-eddy, no surprise event for today.  Bernanke will not allow reporters to paint him into a corner; Ben will try to display a non confrontational posture despite reporters typically making him nervous.  The third man on the field today, to use a football analogy referencing the officials, is the reporters' questions.  If the press conference pit bulls turn into pussy cats lobbing softball questions for Bernanke to hit out of the park, the market move yesterday will be verified.

If, however, the Chairman is grilled on the dollar position, and whether or not QE will continue thru the June end date, and a multitude of other mile post accountability questions, perhaps today will turn exciting.  Chances are that Bernanke says QE2 will wind down as expected in June and he will stay away from making any statements about shrinking the balance sheet or raising rates, and the press conference should go off without a hitch.

Markets are in the bulls favor now although traders are complacent and have no fear of a pull back.  This means the risk is to the downside, upside should be limited, especially as financials continue to not participate.  Dr. Copper remains sick and the POMO pumping yesterday could not bring copper up into a respectable range, so this leader must be taken seriously.

If SPX 1350 handle is hit at the open then the move will accelerate a few handles higher.  Indexes should idle in front of the press conference today.  Market bears have no hope unless they can push under SPX 1337 today.

The Chairman decides the dollar direction today by his actions, or inactions.  If the dollar continues down=commodities and equities continue up, or, visa versa, if Bernanke missteps or provides even a slight whiff of hawkishness, then the dollar bounces=commodities and equities sell off.