Dr. Bernanke Speaks (DIA, IEF, SPY, GLD, VXX)

The”Old Prof” turned most powerful man in the world announced today that Operation Twist will be extended through the end of 2012.

After much hope and a sizzling market rally, global investors were disappointed today in the Federal Reserve announcement that it planned to extend Operation Twist by $267 Billion with the highest percentage of purchases coming in notes between the 20-30 year range.

The Fed continues to worry about slowing employment and economic conditions and the board voted 11-1 in favor of extending Operation Twist. They also decided to keep federal funds interest rates between 0-0.25% which was widely expected and plan to keep these levels through most of 2014. The board also sees slowly improving unemployment and significant downside risks in the global economy.

Market participants, including heavyweights like Goldman Sachs, had been projecting various scenarios possibly to include a new round of quantitative easing, and the recent rally from early June lows in major market indexes had been fueled mostly by hopes for more action by the Fed in response to deteriorating conditions in Europe and slowing economic reports at home and around the world.

Initial response to the Fed announcement seemed to be disappointment as stock indexes declined along with gold and oil.

Dow Jones Industrial Average ETF SPDR Dow Jones Industrial ETF (NYSEARCA:DIA) down 0.33% at 12:45 pm Eastern time.

iShares 7-10 Year Treasury Bond ETF (NYSEARCA:IEF) +0.04%

S&P 500 SPDR S&P 500 ETF (NYSEARCA:SPY) -0.4%

SPDR Gold Trust Gold (NYSEARCA:GLD) -1.6%

iPath S&P 500 Short Term Futures ETN VIX (NYSEARCA:VXX) -0.4%

So now the drama is over and the next event is Dr. Bernanke’s press conference scheduled for 2:15 pm Eastern time. Observers will be looking for clues to the Fed’s next step as Europe continues to simmer, earnings season is about to get underway and the November election and year end “fiscal cliff” approach.

Bottom line: Markets remain dependent, some would say addicted, to Federal Reserve support, and today’s announcement disappointed those hoping for more dramatic action. Instead the Fed opted to “keep its powder dry” in case Europe or the global economy take a further turn for the worst.

Disclosure: Wall Street Sector Selector holds a position in (VXX) actively trades a wide range of exchange traded funds and positions can change at any time.