Bernanke Charms Traders a Third Time

During the question-and-answer period of Ben Bernanke's testimony before Congress on Wednesday, Sen. Jim Bunning (R., Ky.) accused the Fed chairman of general incompetence and of leading the stock market into the basement. But Bunning must have overlooked Bernanke's hand in spurring some huge stock market rallies over the last month.

Wednesday marked the third such occurrence, as the Dow Jones Industrial Average jumped back above its 200-day moving average, gained 210 points, or 1.9%, and closed at 11,009.26 in the wake of Bernanke's testimony. The S&P 500 added 1.8% to 1259.43, and the Nasdaq Composite climbed 1.8% to close at 2079.50.

Altria(MO Quote) was the only Dow component to end in the red, with Boeing(BA Quote), Home Depot(HD Quote) and JPMorgan Chase(JPM Quote) at the vanguard of the advance, the latter after posting strong quarterly results.

Treasury prices and gold also rallied sharply while the dollar stumbled.

Bunning may be at the extreme -- he opposed Bernanke's nomination in the first place. But the financial markets haven't exactly given the chairman high marks since he took office, either. Bernanke's flip-flops contributed to a consensus that the new Fed chairman had communication and credibility problems.

Like bickering spouses, both the markets and Bernanke may be making strides toward better understanding. But a successful marriage is built on follow-through; if the markets and Bernanke can't build on the good days, there are bound to be more bad ones.

Both times Bernanke sparked massive rallies prior to Wednesday's, the follow-through was weak.

After hitting its intraday low for the year on June 14, the Dow rallied nearly 200 points on June 15 following comments on energy prices by Bernanke that were perceived as dovish, or less hawkish than anticipated.

Prior to the June 29 FOMC meeting, the markets were gripped by the possibility of a 50-basis-point rate hike. The Dow rallied 216 points that day as the Fed statement was (again) deemed dovish, or less hawkish than feared. As with June 15, June 29 featured more than 90% upside volume, a bullish signal.

But the June jobs report created stagflation fears, sparking selling that intensified as earnings season got off to a lackluster start and tensions escalated in the Middle East. (Wednesday's postclose earnings included strong results from Motorola(MOT Quote) and Apple(AAPL Quote) but mixed guidance from Intel(INTC Quote) and eBay(EBAY Quote).)