Jon Najarian, co-founder of, describes how Fed chairman Ben Bernanke pulled the rug out from under the bears with a well-timed discount-rate cut.
The bulls were looking pretty spent after multiple runs to 14,000 in the Dow Jones Industrial Average. The bad news kept stacking up, and the bears sensed their opportunity wouldn't get much better than it was at a market high.

The bears' push came in late July, but rather than pushing back, the bulls backed off each time the selling pressure came.

But a predictable thing happened when the bears drove the bulls to the brink, and the Dow finally made that 10% correction: the bulls gathered themselves and fought back. It turned on a dime-or rather, several trillion dollars-as the Dow fought back from a 346-point decline at mid-session on Thursday, Aug. 16, to finish flat on the session. For a change, the bears were on their heels.

But smart bears had seen that move before, and [they] loaded up on the short side for August expiration.

Put options in the Standard & Poor's 500 had open interests that were four times larger than the calls-a very clear indication that the bears were playing for a quick, lethal shot on expiration that would push the market beyond a correction and into a bear market.

And that's why I say Ben Bernanke earned his street (i.e., Wall Street) credibility on expiration Friday.

If the bears won the day after the bulls made their stand, trading psychology would have continued to be very negative. But if a strategic strike was dealt-one that left the Fed room to use its heavy artillery, but gave clear notice that they were off the sidelines-then sentiment could swing to neutral.

That move by Bernanke and a unanimous Federal Open Market Committee [to cut the discount rate at which it lends money to banks], delivered a little more than an hour before the opening bell on Friday, August 17, meant there would be no saving the bears.

The consequence was non-negotiable and non-recoverable, because those short positions in August S&P options would price on the first print of every single one of the stocks in the S&P 500.

That settlement price was nearly 39 points above the previous close of the S&P. And since the bears were feasting on the 5.4% sell-off of Japan's Nikkei 225, the S&P futures were down more than 20 points prior to Bernanke's haymaker.

Add that 20-point pre-market sell off to the 39-point settlement, and you get the idea of how powerful the punch was. That 60-point turnaround, from that potential windfall profit of 20 points or more to a staggering loss for the bears, was one of the most deadly blows ever delivered by the Fed.

Is it over? Do we go back to a bull run? I can't say yet, but I can say that the bears' month of ruling the markets has finally been challenged and what we're seeing now is truly a fair fight!