The Bernanke Equity Bubble Continues to Inflate

TheStreet.com

NEW YORK (TheStreet) -- On Wednesday, I prepared traders and investors for the potential volatility following the Federal Reserve statement and to Fed Chief Bernanke's press conference. In my post, How Capital Markets Will React to FOMC News I presented the key levels to focus on for six ETFs that track long-dated Treasuries, gold, crude oil, the Dow Industrial Average the S&P 500 and Nasdaq 100.

I have been, and will continue to be, a critic of how the Fed has handled monetary policy in reaction to the Great Credit Crunch. The decision not to begin tapering the QEs just continued to inflate the bubble in the U.S. equity markets. The 0% funds rate and the Quantitative Easing have not worked!

Treasury yields declined to my monthly pivots at 2.725% on the 10-year note and 3.738% on the 30-year bond. If yields end the week below these pivots, lower yields are likely in the weeks ahead. Otherwise, yields can rise again on the fear that monetary policy will fuel inflation.

iShares 20+ Year Treasury Bond ($104.37). The Treasury ETF rebounded to its 50-day simple moving average at $105.58 in reaction to the Fed statement. A daily close above this key level indicates additional upside for this ETF. The weekly chart still shows an oversold condition with the five-week modified moving average at $105.44 and the 200-week SMA at $107.77. The rebound has been just shy of my monthly pivot at $105.75. My semiannual value level lags at $92.32 with annual risky levels at $116.26 and $120.42.

The price of gold traded as low as $1291.5 an ounce before the Fed statement then rallied to $1375.4 on Thursday. The weekly chart will be positive with a close this week above its five-week MMA at $1353.0. Extreme volatility is not surprising with my monthly value level at $1224.6 with annual and quarterly risky levels at $1599.90 and $1603.0.

SPDR Gold Trust ($131.75) is now above its 50-day simple moving average at $129.58 with the 200-day SMA at $143.28. The weekly chart shifts to positive with a close on Friday above the five-week MMA at $129.81 with the 200-week SMA at $143.38. My monthly value level is $118.35 with a weekly risky level is $135.75.

The rebound in crude oil following the Fed statement was $108.99 on Thursday shy of my semiannual pivot at $109.84. Oil traded above the 50-day SMA at $106.71, but is below this key level this morning. The weekly chart is neutral with the five-week MMA at $106.44. A close today below the five-week with momentum still overbought is the neutral configuration. The 200-week SMA is a support at $90.79.

Energy Select Sector SPDR Fund ($85.12) traded to a new multi-year high at $85.74 on Thursday in reaction to Wednesday's Fed statement. The 50-day and 200-day SMAs are supports at $82.57 and $78.75. The weekly chart is positive but overbought with the five-week MMA at $82.88 and the 200-week SMA at $68.78. My weekly value level is $81.68 with monthly and semiannual risky levels at $87.91 and $88.35.

My conclusion in my pre-FOMC post Wednesday was simple, "It seems highly likely that all five major averages will power to new highs given a positive reaction to the Fed statement and to comments by Ben Bernanke at his press conference this afternoon."

In my opinion the FOMC decision not to taper will further inflate the equity bubbles and risks re-inflating the gold bubble and oil bubble.

The Dow set its new all time high at 15,709.79 on Wednesday. The S&P 500 set its new all-time high at 1729.86 on Thursday. The Nasdaq set a new multi-year high at 3798.15 on Thursday. Dow transports set its new all-time high at 6743.85 on Thursday. The Russell 2000 set its new all-time high at 1080.49 and Wednesday.

If the Nasdaq ends this week above its annual and monthly pivots at 3759 and 3772 the upside is to the semiannual risky levels at 16,490 Dow Industrials, 1743.5 S&P 500, 7104 Dow transports and 1089.42 Russell 2000.

My annual value levels remain at 12,696 Dow Industrials, 1348.3 S&P 500, 2806 Nasdaq, 5469 Dow transports, and 809.54 Russell 2000.

These levels are shown in today's Market Pulse:

SPDR Dow Jones Industrial Avg ETF Fund ($156.32) is above its 50-day SMA at $152.83 with the 200-day SMA at $145.69 and the Wednesday high at $157.06. The weekly chart shifts to positive with a weekly close above the five-week MMA at $152.39. My weekly value level is $149.35 with monthly and semiannual risky levels at $163.25 and $164.06.

PowerShares QQQ Trust Series 1 ($79.50) is above its 50-day SMA at $76.30 with the 200-day SMA at $70.94 and set a multi-year high at $79.68 on Thursday. The weekly chart is positive but overbought with the five-week MMA at $76.73. My quarterly value level is $73.00 with monthly and weekly pivots at $78.18 and $78.63 with semiannual risky levels at $79.76 and $80.87.

SPDR S&P 500 ETF Trust ($172.67) is above its 50-day SMA at $168.00 with the 200-day SMA at $158.23 and new all time high at $173.60 set on Thursday. The weekly chart shifts to positive with a weekly close above its five-week MMA at $167.91. My weekly value level is $166.42 with semiannual and monthly risky levels at $174.10 and $177.04.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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