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  • Always Beware Of The Bernank 0 comments
    Nov 30, 2011 10:52 AM | about stocks: DDM, QLD, SPXU, IWM
    This morning, all of the major stock indexes are surging higher at the open. The early rally is sparked by global central bank intervention, The central banks around the world will provide liquidity to the large banks that cannot borrow. We must all believe that the Federal Reserve Chairman Ben Bernanke is behind this move. The action by the central banks around the world is causing a massive short squeeze in the markets. Just think about how many investors went short yesterday as the financial stocks plummeted into the closing bell.

    After the close yesterday, 37 banks were downgraded by the credit rating agency Standard and Poors. This major downgrade by Standard and Poors certainly caused many traders to sell short the financial stocks after the close. While the world was getting braced for further downside the Bernank and the central banks were getting ready to announce this coordinated intervention for the banks. This action is causing a major short squeeze this morning as the Dow Jones Industrial Average rallies higher by nearly 400.00 points.

    In 2008, when the major stock market indexes were plummeting the Federal Reserve Bank Chairman Ben Bernanke lowered the discount lending rate before the opening bell on an options expiration day. This again caused a massive short squeeze in the markets. The bottom line, the Bernank loves to cause these short squeezes. He has a long history of causing these types of market reactions from time to time. Just think about it, how many times has the Federal Reserve floated the idea of another quantitative easing program since QE-2 ended in late June 2011? They leak the idea of QE-3 nearly everyday. Just yesterday, the San Francisco Federal Reserve President Janet Yellen said, “We are actively considering methods that we could use to provide greater clarity” on the central bank’s pledge to keep rates low through at least mid-2013, and new purchases have the potential to “flatten the yield curve.” These remarks move markets and are used everyday by the central bankers.

    This is why traders must learn how to use charts. The charts have a tendency to forecast the market moves before they occur. The charts are not perfect, however, as a trader we simply want the edge or the odds in our favor to take trades that will make money. If you are not looking and understanding the charts then you are doing yourself a great disservice. The charts told us that these markets were ready for a bounce and sure enough the central banks pull this stunt today. Only the charts could have told us this was coming. As for the Bernank, he will continue to cause short squeezes from time to time just the way he always has in the past.

    Nicholas Santiago

    Stocks: DDM, QLD, SPXU, IWM
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