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Saturday, September 15, 2012

Saturday, 9/15/12 update

A lot of ink has been spilled since Thursday's QE3 announcement.  Some very valid criticisms have been aired of the Fed's move - the long term effects can only be regarded as potentially disastrous.  But to look at this action with a long term perspective is to miss the point - it's a pretty fair bet that the goal has a time horizon of less than 60 days - specifically Tuesday, Nov 6: Election Day.  That may be cynical, but it sure has that smell.  So it could be that given an appropriate delay, say until January or February, QE3 may get walked back.

The rally on Thursday into Friday itself has generated an ominous pattern on one of this site's proprietary indicators.  The Vindicator Buy/Sell index attempts to measure buying vs. selling pressure in equities.  It is based on Adv/Dec and Up/Down Volume statistics.  The index showed buying and selling to be almost equally balanced on Thursday and Friday.  Normally a rally of that sort will see the Buy line (green line in the chart) ramp up while the Sell line (red line) flat lines.  Instead both flat lined.  What this is saying is that there was a significant amount of distribution occurring during the ramp up.  The market certainly generated high overbought readings on standard momentum indicators over the two days, so a pull back is in order here.  The question is whether the picture shown by the Vindicator Buy/Sell is signalling that more than a normal correction to an ongoing rally is in the offing.  

SPX  /  Vindicator Buy-Sell (30 min bars)

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