Blame It on Bernanke

 | Jan 26, 2012 | 8:56 AM EST
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"The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost." -- Federal Reserve Chairman Ben Bernanke in a speech to the National Economists Club, Nov. 21, 2002

The stock market loves a big supply of cheap money, and Big Bernank made it clear Wednesday that he is very open to this idea. The Federal Reserve made no promises but indicated in its policy statement that it would stay highly accommodative, and at the press conference Ben Bernanke seemed to have few concerns about another round of quantitative easing.

Even though the market was extended and struggling with a "sell-the-news" reaction to Apple's (AAPL) great earnings report, Dr. Bernanke's hints about endless cheap money ignited the buyers and sent them scurrying to snap up euros, precious metals, oils and commodities. Once again, the bears who keep looking for a reversal were caught trying to fight an extended market and ended up sending it even higher as they were squeezed.

The big issue now is whether this hint about quantitative easing is going to have legs to run on. It was just a hint, not a guarantee, and it carried conditions. There are very harsh critics of further quantitative easing, and there are political headwinds as well, so it is definitely not a done deal, especially if the economy doesn't falter.

We are back in a very familiar place, with a market technically extended on low volume, but buyers who have been anxious to jump in are not allowing even a minor pullback. The underlying strength since the first of the year has been extremely impressive with no pullback lasting longer than a few hours. There has been no sign of profit-taking; the dip buyers reflexively jump in on any pullback.

The economic data this morning are strong, which is driving the market. That is a bit inconsistent since the economic data is weak. That will push the Fed to offer the much desired quantitative easing.

The bulls have momentum, but we are in nosebleed territory and have a very narrow foundation of support. The key is to continue to hold the opening levels and not reverse intraday. It is tough to put new money to work, but it's even tougher to short this action.

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