Market Strategy This Week: Beware of Bernanke

Things looked great last week. After Thursday's record-setting rally, the major indexes continued to have moderate gains, capping off a three-day bull run. The blue chip index climbed 295 points over the week. Market analysts are crediting a weak dollar for this rally, which is helping U.S. exports by making them cheaper in overseas markets, as well as boosting the overseas profits of multinationals when repatriated into dollars.

Next week will be the heaviest week in terms of Dow companies that are reporting their earnings. The second week of earnings season will feature Dow components including Coca-Cola (KO) , Intel Corporation (INTC ) and Johnson and Johnson (JNJ) on Tuesday. On Wednesday, JP Morgan Chase (JPM) , United Technologies (UTX) , Altria Group (MO) and Pfizer (PFE) will report. Honeywell International Inc (HON) and Microsoft Corp. (MSFT) are due to report on Thursday and Citigroup (C) and Caterpillar (CAT) on Friday.

Away from the Dow, Yahoo Inc.'s results (YHOO) due on Tuesday will also be closely watched. The embattled Internet company that was once a darling of individual investors is expected to report no gain in profit during its fiscal second quarter, as it attempts to rebound from a difficult period with a new CEO at the helm.

Despite all the 'Feel Good' factors around, individual investors may still feel nervous going ahead this week with Dow and all major indexes sitting at peaks. Among all these crucial earning reports, investors will be closely looking at key U.S. economic reports, including two measures of inflation -- the Producer Prices Index on Tuesday and the Consumer Prices Index on Thursday.

But this week's key focus would be on Fed Chairman Ben Bernanke who is to deliver the Fed’s semiannual Monetary Policy Report to Congress on Wednesday July 18 and Thursday July 19. The timing presents one challenge: the June consumer price index will be released the first morning of his testimony. The number may either resolve or heighten the Fed’s concerns, who stated only a few days back, “A sustained moderation in inflation pressures has yet to be convincingly demonstrated.”

Presence of any negativity in Bernanke's comments or any hint at inflationary risk may trigger a fear-wave in the nervousness that always exists at top of the index charts and may lead to a sell off in broader market at least for a short term. If you have already gained some sizable percentage in a stock, you may (... depending on how much risk you can tolerate ...) consider taking the profit ahead of the report. After all, nobody went broke by taking some profit money off the table. If the market still goes up with positive comments and/or good earning reports from major companies, you may regret it but you'll not be sad. On the other hand, some cash in hand may allow you to take a position in some quality stocks in case of a pull-out.