Thursday may feel like a replay of Wednesday in the markets, when Fed Chairman Ben Bernanke starts to speak to Congress, shortly after the market open.
Bernanke's comments Wednesday did nothing to change market trends though they helped to increase talk about inflation and a falling dollar. Certainly, that weak dollar trend is dominating, after the currency hit yet another new low against the euro Wednesday. Commodities prices continue to rise at a healthy clip. The Reuters-Jefferies CRB index, which tracks 19 commodities futures, hit its ninth straight high Wednesday.
Gold bounded higher once more, closing up 1.3 percent to $958.20 per troy ounce. Oil hit an intraday high of $102.08 but inventory data showing better-than-expected U.S. supplies nipped the rally.
Stocks finished flattish Wednesday but the market was still volatile. The market was down early but by late morning, stocks got a bounce from news that the Office of Federal Housing Enterprise Oversight is allowing Fannie Mae and Freddie Mac to lift portfolio caps.
The market though ran out of steam by the end of the session. The Dow was up just 9 points at 12,694. The S&P 500 was off 1 point and the Nasdaq, riding a tech wave, rose nearly 8 points.
Bernanke will offer few surprises when he carries on a second day of testimony, this time before the Senate Banking Committee.
On Wednesday, Bernanke testified before the House Finance Committee. His message was as expected. He is concerned about inflation, but the Fed is in a mode to continue cutting interest rates to prevent the economy from further weakening. Traders see this as a signal to expect more dollar weakness.
Thursday's economic data includes initial jobless claims at 8:30 a.m. and fourth quarter GDP, also at 8:30 a.m. Some important earnings reports are expected from AIG, Viacom, Dell , Sears and Freddie Mac.
Fannie Mae released its earnings Wednesday, revealing a $3.6 billion quarterly loss on an increase in defaults and foreclosures. Fannie stock took a beating on the news but turned positive after the OFHEO announcement. The move would allow the two mortgage finance companies to buy more mortgages, a help to the ailing housing market.
"It made the stock market rally (initially)," says CNBC's Rick Santelli. "But if you look at the broader picture, the government-sponsored enterprises are going to take on more risk."
Scott Redler, chief strategic officer with T3 Capital, appeared on "Squawk on the Street" last Thursday and discussed how the market had formed a "wedge" pattern. At the time, he explained a wedge forms after a major market event. He said the market had put in a pattern of indecision and was ready for resolution, or a directional move. There were some signs the market could break to the upside but he couldn't know for sure.
Well, that guess was right. So I asked Redler what he sees now.
"That 12,450 on the Dow was a key inflection point, and once we crossed over it the momentum switched to where shorts had to cover, and we've had a directional move," he said.
Now that the market's had its best three-day move in months (as of Tuesday), Redler said it's time to be more selective and trade the sectors that have the best risk reward. "We saw some rotation (Wednesday) out of fertilizer and energy stocks, into financials and tech," he said. He pointed to the positive behavior of some tech stocks, like Google, RIM and Apple, which all opened lower and ended nicely higher Wednesday. He also pointed to strength in Goldman Sachs, which has been under pressure.
"If you caught the move, which was 450 points on the Dow, you have to take half off the table if you put a trade on then. If not, start being a little more selective," he said. He said don't just buy the indexes. "Easy money has been booked," he said.
Check out Redler's comments from last Thursday.
Insurers in Bondage
The ongoing saga of the bond insurers has become a regular of the trading day. But New York Insurance Superintendent Eric Dinallo says the end of one drama could be near. He says the efforts to find investors for Ambac are in the "eighth inning" and that he is optimistic a deal will be struck. Dinallo says his goals for the bond insurers were to find new players, like Warren Buffett, then to make sure the existing firms were capitalized and now to structure new regulations for the industry.
I spoke to Dinallo after participating in a panel with him at Crain's Breakfast Forum. He also repeated that Sovereign funds were among the potential investors in bond insurers, in addition to private equity funds.
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