The SPX has come off a spike QE re-affirmation rally as the market awaits the next
chapter on monetary policy this week and seeks to glean if there may be new hints
about the continuation of this program. Of particular interest would be whether the
Fed believes the economic outlook is solid enough to commence a program of curtailed
QE wherein the Fed say only buys between $60 - 70 bil. per month of securities instead
of the current $85 bil. program and, if so, when the curtailment might begin. There is an
apparent consensus that a moderate "taper" program could begin this autumn. The weekly
leading economic indicator sets I follow have started to show some slight improvement
but do not at all yet suggest that such speculation about monetary policy is appropriate.
Regardless, the run up in the SPX off the 6/24 closing low was fast enough that that no
one can blame traders for wanting to take "a breather". The SPX just broke below its 10
day m/a and the short term indicators are showing some deterioration. So, despite the
idea that some consolidation is reasonable, more damage in the indicators in the days
ahead would signal a pullback. SPX Daily Chart
Viewed long term, the SPX horizontal line of 1700 on the daily chart would confirm
a turn to a more speculative market on technical grounds if the SPX takes it out soon
and would fall in line with my fundamental work that puts a new speculative era in play
above 1650.
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