We Await Bernanke's Speech on Monetary Policy Since the Crisis

Bernanke's speech this coming Friday at Jackson Hole should spark this incredibly dull market into some action.

With limited volume and small trading ranges, the E-mini S&P 500 Futures (ES) is up more than 4.2% since the low on August 2nd and is setting up for at least a small correction. September is historically a bad month in the market and it is looking like September of 2012 is setting up to fit that bill.

Much of the price gains the markets have experienced over the summer can be attributed to expectations of further easing by the Fed. There is no chance, in my opinion, that Bernanke will announce any official new easing measures at Jackson Hole. Last week's FOMC minutes that seemed to support more QE have already been disregarded as outdated. Economic data is just not weak enough to warrant it. GDP numbers released this morning were better than expectations adding to the argument against more QE.

So without more easing, I expect the market reaction to be one of selling in September. Its not that the market expects more easing measures to come out of Jackson Hole, but without at least some solid bait to feed on the expectations that more easing is likely to come out of the September FOMC meeting, the market will have no choice but to sell-off a bit from its current frothy levels. At the same time, I am not overly negative on the markets. Not needing additional monetary easing  is a sign that the economy is not weak enough to warrant it. Economic data continues to improve and the market believes the Fed will act if it needs to. This creates an artificial base that will keep price from trading too low. Draghi and the ECB could also spark the markets with news of a bond buying program in Europe.

Once volume picks up, I will post price levels that correspond to the view that a small correction is coming and will be followed by what could be a major buying opportunity.