Wednesday, 22 August 2012

Fed QE3 Speculation - Chart Reversal Possibilities

Surprisingly, the minutes of the FOMC meeting revealed the Fed is much more ready to execute another round of Quantitative Easing than many had anticipated.  While economic growth has been rather anemic, it is stable and compared to the risks from another round of easing, many had assumed the chances were low of QE3.  While the market looks overbought, QE1 and QE2 resulted in a huge market rally during their time of operation.  Based on that, the impact of QE3 should not be underestimated.

Looking at the S&P 500 5 day chart, there was a distinct and strong downward trend from the last 2 days.  All that changed the moment the minutes came out and the market rallied significantly.

Looking at the daily chart over the last 6 months, there was a slight peak forming in the stock market last few days. With today's announcement, its hard to say yet if the upward trend will continue due to Fed intervention.  The next week, culminating with the Jackson Hole announcement (QE2 was announced there) will be instrumental in setting the tone of the market of the rest of the week.

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