Wait For Clarity Next Week. Calm Before the Storm.

All remains quiet on the news front and traders are not taking positions ahead of major events. Volumes are at five year lows and next week we will know if recent gains will hold. Ben Bernanke will speak at Jackson Hole Friday morning at 10:00 AM Eastern time. Most analysts believe that his comments will be dovish and the Fed will move up the timeline for QE3. Anything less will result in a pullback. Draghi will not be speaking at the conference as previously planned. Most traders did not believe that he would make a major announcement at this conference. He will be attending the European banking union on September 3rd and the ECB will release a statement on September 6th. He will save his announcements for these two events and short-sellers will be held at bay until then. If the details are sketchy and timelines are not provided, the market will sell off. Next Monday (Labor Day), China and Europe will release their official PMI's. The flash numbers were weaker than expected, but the market shouldered the news. China's Finance Minister said that they were prepared to ease and traders are expecting it. China's stock market rebounded last night after making multi-year lows and a weak PMI might already be priced in. Q2 GDP will be released tomorrow and it should be a non-event. The GOP convention is underway and that should keep a small bid to the market. On a short-term basis, the ECB could pull a "rabbit out of its hat". Interest rates in Spain and Italy have pulled back and recent auctions have gone well. If traders believe that the EFSF can artificially suppress yields, the market will push higher. Unfortunately, nothing has changed. European banks don't want to buy sovereign debt and the LTROs were ineffective. Consequently, the ECB had to find another buyer of last resort (EFSF). Structural deficits still exist and entitlement reform is not being addressed. Plans for a centralized banking system will be released in the next few weeks. Many EU members will be reluctant to give up control over their national banks. Conditions in Greece are tenuous and future bailouts will be discussed at the European banking union on September 3rd. German officials were already talking about an EU without Greece and Merkel asked them to tone down their rhetoric. Even if traders are convinced that the ECB will stay ahead of the curve, a new problem has surfaced. China's economy is contracting and the global growth engine could be in trouble. The US and Japan both face fiscal cliffs. Spending cuts will impact economic growth will decline. For the time being, everything feels great and the market is within striking distance of a four-year high. Conditions can change rapidly and I see trouble ahead. I am trading from the long side this week and I'm keeping my size very small. Look for positive price action through Thursday. The first trouble could come when Ben Bernanke speaks Friday. I plan to be flat before then and I won't be trading Friday. Next week I will evaluate the news and I will wait for clarity. ISM manufacturing, ISM services, ADP, PMIs, ECB statements and the Unemployment Report will all be revealed. Only a fool would take large positions in this light volume environment ahead of major events. Keep your size small and look for a positive bias the next couple of days. I am trying to temper my bearishness. . .

Daily Bulletin Continues...