Market rises on possible new batch of crack (QE3)

Damn, right on time. As soon as the markets tried to swoon, the Fed policy leakers start sending little love messages to the market that all is well and the Father Bernanke won't let anything bad happen. Note comments sent out at 3:55 pm on Tuesday just in time to allow the market a melt up to close the day.

"The WSJ's John Hilsenrath leaketh the good stuff (QE3 hints) that the world's been waiting for right at the close -- coincidentally just as several important support lines and moving averages were beginning to be violated like James Holmes in a Colorado prison...
Federal Reserve officials, impatient with the economy's sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring."

Apple missed its numbers big time and the news on he economic front is dismal at best. Here's an interesting ending paragraph to the Hoisington Quarterly report that speaks volumes as to what they see going forward in this broken market:

"Based upon the historical record of effects of excessive and low quality indebtedness, along with the academic research, the 30-year Treasury bond, with a recent yield of less than 3%, still holds value for patient long-term investors. Even when this bond drops to a 2% yield, it may still have value in relation to other assets. If high indebtedness is indeed the main determinant of future economic growth and further government “stimulus” is counterproductive, then a prolonged state of debt induced coma may so limit returns on other riskier assets that a 30-year Treasury bond with a 2% yield would be a highly desirable asset to hold."

Van R. Hoisington
Lacy H. Hunt, Ph.D.

Certainly not an endorsement of the Equity markets going forward. The next bit of advice is characteristic of what I have been preaching in this blog since the start ......... things are really, really rotten around the globe and the guys running the Governments  haven't a clue on how to fix our problems. Their only hope was to avoid being in office when the dam broke ........ too late for that.

"To top it all off (and trust that I could keep listing things but you get the point by now) yesterday we received an infamous confirmed “Hindenburg Omen”. So what does it all mean and what will happen next?

If we think back to the “Flash Crash” of May 2010 and the early August plunge of 2011 there were a few things in common with both events:

Market participants were generally positioned fairly bullish with a general sense of complacency – the $VIX was relatively muted and rose rapidly as panic set in
Both corrections occurred rapidly amid a “buy the dip” mentality which dealt out a great deal of punishment to the vast majority of market participants
There were powerful catalysts which emerged suddenly and took the market by surprise (Greece in 2010, Italy yields skyrocketing, emerging US recession fears, and US downgrade in 2011)"

 Comments by Robert Sinn at the Stock Sage and posted at the The Daily Crux


We are getting really close to a major top here and the move lower could be very swift. The one indicator we need to watch closely is the VIX index (Volatility). So far it has not shown the fear necessary to move the markets lower in a significant way. The chart below shows a 6 period moving average of the index and it moved up smartly yesterday above the 20 threshold but fell back once the QE3 rumor was circulated. Once we see a move above 20 and the market holds that level into the close it will be time to get very conservative with your investments. (Remember the VIX moves in the opposite direction of the market price)