It was not your typical day in the neighborhood. Given that stock markets have been Fed fueled for years now, anytime Bernanke is given a stage, the markets listen. This is especially true in these times as suggestions of reducing qualitative easing have been mentioned. Bernanke was scheduled to testify on the Economic Outlook and Monetary Policy before the Congressional Joint Economic Committee at 10am EDT this morning. His testimony was in two parts: a pre-written testimony released at 10am on the FOMC website followed by Q&A. Additionally, the FOMC minutes were to be released at 2pm EDT. Two separate chances for trader expectations to change as they try to decipher the meanings behind Fed speak
New information from the Fed changes trader expectations which as I posted in chat “you cannot trust support and resistance in this sort of volatility”. The volatility and potential trend was expected coming into this morning. I posted pre-market in chat “The Fed should make the markets volatile during Ben’s testimony and minutes release. There’s the possibility of a trend day or large swings.” My trading plan for the day was simple “I want to be long above 74 and/or short below 69, especially if the ES has momentum when breaking these areas.” When 10am arrived, price bounced off 74 and then quickly broke through it. Trading news is not order flow trading, in fact, order flow readings are all screwed up until news is digested and the market settles back down. Trading news is about catching the momentum for a potential trend. My plan was to be long above 74; price had already moved through 74 and a breakout entry is most easily handled by hitting the buy market button. Ben’s prepared testimony and initial comments kept the ES going up for 30 minutes, over 10 points with no significant pullbacks, plenty of room to reach all targets.
The Bernanke made a comment that he thinks the Fed can ease off QE while maintaining their mandates. Well, that was enough to start the stock markets down the rest of the morning and into the 2pm EDT FOMC minutes release which did nothing to stem the bearish tone. Volatility was wild all day; reminded me of 2008. Order flow and support and resistance can’t be trusted when volatility is wild, so no order flow trades today.