Lots going on in the weekly chart. The QE2 Rally topped out in spring 2011. The Fed and ECB stepped in during Fall 2011 to save the day. This Operation Twist and LTRO1 and 2 Rally died in April this year. The ECB's OMT Bond-Buying Program and QE3 Infinity saved the day this summer creating the June-September Rally. This stint of QE occurred without the central bankers waiting for deflationary conditions, they simply charged full steam ahead throwing the kitchen sink at the economy, running the printing presses 24/7. The summer rally all occurred in anticipation of the QE and when it finally arrived, the markets fell lower. Draghi's OMT occurred early September at SPX 1403. Bernanke's QE3 Infinity occurred early September at SPX 1438. The SPX is 1419. No one talk about how QE3 Infinity already failed. Further, the Fed is to announce QE4 Infinity and Beyond tomorrow afternoon. A world gone mad. The markets simply move up on the crack cocaine stimulus, fundamentals be damned.
Price closed under the 20-week MA at 1419.39 so watch this critical S/R level today. The blue circles show how each time price dropped thru the 20-week, there was big trouble ahead. This near one-month QE4 Infinity and Beyond Rally in progress has honed in on the 20-week MA providing it even greater street cred. Note how the current rally is similar to the summer rally in that the markets are pricing in the Fed stimulus already, before the announcement occurs. The question is, how much is priced in? Some traders expect a 40 to 50 handle pop on tomorrow afternoon's FOMC announcement taking the SPX back up to the 1470's. This outcome cannot be ignored since the FOMC decision, and fiscal cliff drama, is an unknown, that can end really really well, or, really really badly.
We do know that the bottom at 1350-ish and move up to 1419 now is already a 70-handle rally, over 5%. Price bounced off the 50-week MA so that will be a key level as the weeks play out ahead. The top in September-October was easier to forecast than current conditions. The rising wedge and negative divergence (red lines for indicators sloping down) guaranteed the spank down. Markets are now in a sideways pattern at the mercy of politicians and central banksters. The S&P downgrade of U.S. debt occurred in early August 2011 which directly led to the waterfall crash. Understand that another downgrade would be a serious blow to the economy and markets. Also of interest is the Egan-Jones, a smaller rating agency but one who appears much more reliable, downgrades in July 2011, ahead of the game, and also two additional downgrades this year one in April, again, fortuitous timing, and another downgrade in September about a month or so ago.
Markets stumble sideways. The FOMC decision will be known at 12:30 PM EST tomorrow with Fed forecasts and a Press Conference all on tap as well. The Fiscal Cliff negotiations need to bear fruit by Thursday, say by week end, to allow time to simply price the bill and sort out all the administrative type requirements. Thus, seat belts will be required here forward. The RSI shows weakness from the price low in the spring to the price low one month ago which hints that price needs to come back down. Use the 20-week MA as a tool for this chart to directly note if the bulls or bears are winning. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
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