Bernanke Testimony to Congress

In his twice-yearly testimony to Congress on Tuesday, Bernanke told Congress that recession could end this year and that regulators are not planning to nationalize banks. His statements lifted the Dow by 236 points (3.3%) and sent bank stocks soaring.

Citi Group closed the day at US$2.60 which is 54% higher than its last Friday low of US$1.68 as shown by the above 5-days movement chart.

Bank of American did better, its closing price of US$4.73 is 71% higher than its last friday low of US$2.76.

When the current downtrend (Wave A) is completed and when the Dow begins its Wave B uptrend, US bank stocks that were badly beaten down by more that 90% from their respective heights are expected to out perform stocks in other sectors.

Dow has been very well behaved so far. Tuesday rebound has marked the end of sub sub wave (iii) as shown below. The downtrend is not over yet.

It is going to be interesting to watch the behaviours of Citi Group and Bank of America (BAC)with respect to Dow from now on. If my guess is correct, there will be divergence between the bank stocks and the Dow. The bank stocks may not see their lows again. If you are lucky, Citi and BAC may retest their last Friday lows to form a double bottoms reversal pattern when Dow completes its Wave A below 7000.

The chart shown above is the 5-days movement for AIG. It set a new low of 38 US cents on Tuesday. Bernanke did not clear the air on nationalization of Insurance Company and latest market talks on the comming announcement of 4th quarter loss of US$60 billion and on the possibility of AIG to file for bankruptcy protection before end of the week were factors that pushed the price to 38 US cents. How low is low???