Comments from Fed officials yesterday and today have scared the markets once again. Recall May 22? Bernanke's attempt to be very clear about the FOMC's game plan wasn't well received. The market gave back 6% by June 24, but then, even more surprising, recovered all of those losses and hit new highs in short order. SPX lost $10 to close at $1697 while RUT lost $11 to close at $1052. Volatility rose nearly one point to 12.7% (as measured by the VIX).

Trading volume rose to 1.9 billion shares of the S&P 500 stocks, but this remains below the 50 dma at 2.3B. Trading on the NYSE increased 23% and also increased on NASDAQ, but not quite as much at +5%.

This is a light week for economic data, so it is hard to predict where this market may be heading. Depending on which Fed official is quoted each day may make a huge difference. If Bernanke frowns as he gets out of his limo, the market may crash! Maybe it isn't quite that bad, but I'm not far off the mark. In fairness, it is true that this scenario is new to Wall Street. No one knows how to value this market in the absence of Fed stimulus. Perhaps many traders have simply decided to take their profits and go on vacation.

Watch the area of $1680 to $1690 on SPX; that has been a strong support area through most of July. If we break down through there, we could find ourselves at the 50 dma at $1650 in no time. A similar area to watch on RUT's chart is $1040 to $1045. RUT's 50 dma is at $1009.

Today's market pull back was just the right medicine for my August iron condor on RUT. It now stands at a net 13% loss with position delta = -$90 and position theta = +$279 (on 20 contracts). My Sept position at 930/940 and 1120/1130 (mistyped those strikes yesterday) stands at a 5% gain with position delta = -$33 and position theta = +$70 (on 20 contracts). Both condors are back closer to delta neutral with today's pull back. I will apply the two sigma rule to the August position this Friday.

So we return to Fed watching...