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Traders Pulling A Boner On Bernanke’s Meeting Extension?

US banking system measures continued to rise over the last 2 weeks, driving the composite macroliquidity picture to a new high. Until the past week, the Treasury market had acted as a black hole absorbing all of that liquidity at the expense of stocks and commodities. But traders apparently felt that Bernanke had sent a smoke signal out of Jackson’s Hole that QE3 would be coming when he announced the expansion, not of the Fed’s balance sheet, but of its meeting schedule, expanding the Fed’s September meeting from 1 day to 2.

Apparently in the market’s new view of expansionary Fed policy size no longer matters. The length of the meeting does. Since it’s now going to be a 2 day session, traders gave stocks got an anticipatory erection, concluding that QE3 is on the way. The “risk on” trade is back. The assumption is that the Fed will do the pumping necessary for them to pull out of this trade at a profit. Traders also placed a bet not only on equities, representing economic momentum, but they are returning to the inflation bet on commodities. This is a monumental boner because a rising stock market AND rising commodity prices will all but assure that the Fed cannot pump.

Meanwhile, the financial flows that fed the Treasury rally were largely self reinforcing, based on the “risk off” trade. If that trade is seen as no longer valid, or needed, the flows which drove it are likely to, at the very least, slow down. That alone should be sufficient to damage prices.

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Skating on Thin Ice, Keep Life Preservers Handy

We may be skating on very thin ice here, but the weight of the evidence still supports a weak bull case for the near to intermediate term. So I’m adding buy picks on the chart pick list and adjusting trailing stops to account for the risk.

Technical Trader subscribers click here to download the report.

Not a subscriber? Follow Lee’s weekly swing trade chart picks with Lee Adler’s Technical Trader, risk free for 90 days!  

These reports are not investment advice. They are for informational purposes, for a broad audience of investment and trading professionals, and other experienced investors and traders. Chart pick performance changes week to week and past performance may not indicate future results, as you know. Trading involves risk, and these reports assume that you understand those risks and manage them according to your tolerance. 

Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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