Keeping an Eye On Dr. Bernanke’s Prescriptions

Tomorrow, economists, policy makers, journalists and (for us, most importantly) institutional investors will all be focused on Fed Chair Ben Bernanke’s speech at the Kansas City Fed’s conference in beautiful Jackson Hole. The speech is scheduled to commence at 10 AM EDT (Ben apparently gets no breakfast, unless he eats early), and my guess is that traders are going into it with their short term positions fairly close to square. He isn’t expected to announce any new initiatives, unlike last year, when “QE2” was unveiled; there doesn’t appear to be much unanimity at the Fed these days about anything. The paraphrased remarks are expected to sound something like this: “The Fed is vigilant. If appropriate, it will use the appropriate tools at the appropriate time.” 

If he says something other than that, either along the lines of “We are alarmed at the trend in the recent economic data, and will respond resolutely” or “Although the recent data are weak, the trend in inflation is too strong to permit any additional easing”, you are likely to see a really nice illustration of the power of the First Half-Hour Breakout that Todd teaches. The risk tomorrow will be that having uttered something that gets equity futures blowing  through the first half hour’s high, or low, Bernanke will make an observation that causes a violent reaction in the other direction, creating several extremely long vertical bars that will indicate that almost everyone got hurt.

In short, if I was to take the breakout trade tomorrow, I might have an ambitious profit target in mind, but I would place the profit order along with the buy or sell stop order, and probably make the initial orders buy stop limits or sell stop limits, in case things get really sloppy.  I could easily see blasting up or down to a profit level and then quickly reversing before my finger could hit the “Close All Positions” button. Of course, the betting is that we will get nothing at all; apart from the speech, it’s a Friday in late August ahead of a hurricane.  Still, if Dr. Bernanke does in fact have anything of consequence to say, the reaction could be quite violent, which is wonderful if it’s profitable.

Just something to watch, tomorrow. At least, given the timing, we won’t have to wait long.

About the Author Brian Keith


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