Tuesday – Bernanke Promises Qinfinity and the Markets Shrug it Off?

Last Tuesday, we were waiting for the Dow to show some strength. 

As you can see in Dave Fry's DIA chart, we're still having trouble with 13,600 – same as last week.  We did a full analysis of the Dow components in last week's post so we were ready for yesterday's action as I said to our Members in Chat at 10:28:

Volume very low on this rally – just 29M on the Dow at 10:26 so hard to say anything we see is significant – maybe just short-covering on that ISM report so let's grab 30 DIA weekly $137 puts for $1.60 in the $25KPs while they're cheap with a stop at $1.40.  

We also (gasp!) shorted AAPL and sold some long QQQs in subsequent comments (10:32 and 10:34) and we took $2.05 and ran on the DIA puts at 1:24, when we made a well-timed, non-greedy exit (up 28%).  We could have done better if we had held them into the close as they finished the day at $2.30 but we were bottom-fishing by then and had flipped long for the overnight as the sell-off seemed a bit silly, what with the Chairman of the Federal Reserve telling us:

“We expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens.”

As I said last week – even if we want to assume that continued money-printing by the Fed is only 25% as effective as it has been for the past 3 years (chart on left is expansion of Fed Balance Sheet and the Money Supply divided by 10 (so it fits)) - the S&P is up 116% (from 666) since March 9, 2009 and Bernanke is telling you – over and over again – that he will keep up this market-pumping policy for AT LEAST 2 more years.  So maybe we don't gain 30% a year, maybe it's "only" 10% – that's still taking us to S&P 1,747 in 2015, Dow 16,353.  

Like it or not, that's our market reality.  "God, grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference" is AA's "Serenity Prayer" and we at PSW are trying to take it to heart and ignore…