Tug of War

by Larry Levin

After a vicious tug-of-war throughout the day, stocks finished mostly lower. On the bullish side of the rope were lower oil prices, while the other side was being pulled by Bernanke's inflation comments.

For the first time in a long time equity investors were told by the chairman of the Fed that he may need to raise interest rates to combat inflation. His remarks raised expectations that the central bank might hike interest rates later this year to curb inflation; more expensive borrowing could jeopardize an economic rebound. That said, I was wondering if Bernanke actually has the stuff to pull it off. Was his comment just rhetoric to support the dollar? Is Bernanke now doing the job of the Treasury?

But not everyone believes it's just rhetoric, not yet anyhow. "The concern for investors is that the Fed has now confirmed a shift in focus toward fighting inflation," said Ken Tower , market strategist at Covered Bridge Tactical. "The question now becomes when (not if) they will begin raising interest rates. That suggests there will be no further steps to bolster economic growth. The economy is on its own."

Imagine that for the first time in decades the economy will be "on its own", to sink or swim without the lifeboat of the Federal Reserve there to save it. Well, I just don't believe that yet because when Wall Street whines loud enough, the Fed will surely go back to what works best: "Jump you say? How high?"

There something of a tug-of-war between inflationary and deflationary forces as well. Traders remain concerned that high energy prices will not just aggravate inflation, but also slow consumer spending, which slows economic growth, which is deflationary.

"If you bet against the consumer over the past several years, you would've been wrong. The consumer has held up surprisingly well. However, at some point there is a breaking point. I think some people believe we may be approaching that," said Chris Colarik, a portfolio manager at Glenmede Investment Management in Philadelphia .

Real Time Trading Signals*for

Trade Date: 6/10/08

E-Mini S&P Trades*
(before fees and commissions):

1) B/away sell @ 8:30am at 1352.25 = -2.00 (1 lot)

2) VA buy @ 9:35am at 1357.25 = +1.00 & +.50

3) OTF buy @ 12:00pm at 1361.25 = +2.00 (1 lot)

4) Engf buy @ 2:25pm at 1360.00 = -1.00 (1 lot)

5) Algorithm trades (8)??€??combined total...+1.25

E-Mini Russell Trades*
(before fees and commissions):

1) Buy @ 9:35am at 732.2 = -.6 (1 lot)

2) Buy @ 9:56am at 731.4 = +2.6 (1 lot)

3) Buy @ 10:52am at 730.3 = +.3 (1 lot)

4) Sell @ 2:46pm at 733.6 = +.3 (1 lot)...+$260.00


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