To QE3 or not to QE3, that is the question

To QE3 or not, that is the question and it ended up being the theme of the week. That is when they weren’t talking about the debt ceiling. This has the potential to be the biggest sham in the history of American politics. People who were around in the Great Depression tell us that Washington never had the kind of vitriol or division in those days. Here, we think the potential is for a move down to the bottom of the range as they hit a deal in the 11th hour. Did we forget to mention the problems in Europe?

Despite the divisions, have you seen the bond market? The bond market tells of a completely different picture. Why is it the bond market stays up as the politicians drag us closer to the edge of the cliff? Perhaps investors are like me and find it hard to believe they’d allow the country to default when they didn’t have to. What that tells me is somehow the Fed is still buying up Treasuries on the backs of foreign investors who are still looking to the bond market as a safe haven which is very instructive as to what they think about Europe. SOMEBODY is buying them because the bond market retraced and took out excellent calculations back at the June high. Here’s a chart that was on the brink of collapse had it not flipped back up at the March high and made all the way back to the high. Given the candle formation I find it a little curious and irregular that prices could’ve made it all the way up so quickly. Now we have WORSE readings at the high than we did the first time. All of which means there is likely to be MORE buying probably sporadically down the road. The Treasury will probably sneak in some purchasing every chance they get and not make it look obvious. But world investors are contributing as well, lack of agreement on debt ceiling or not.

How else does The Chairman come out one day and tell us QE3 is on the table and the next day NOT? With all of the press conferences and visits to Capitol Hill, they’ll do exactly what they think needs to be done without the light of public opinion. That’s what I think about it.

Friday was an inside day for the NDX and SPX. The only real indication we could go up is from the oil chart which appears to be tracing out a bullish triangle. It was a flat week for the most part which is confounding to many. But the reason for it is 2 charts that usually go inverse to each other moving the same way. These charts have been the 2 biggest influences on market direction since 2007. Of course we are talking about the Greenback and the BKX.

If the Dollar topped the market should be going up. The only problem is the banks haven’t gone up because of an excellent 45dg high at the pitchfork channel line and have broken to the downside since this technical event about a week ago. It’s crossed over the mid line and ended the week in the deeper path of least resistance down. The BKX is back at the June low. It closed the week with a bullish bar but it will take more than that to get the banks turned back up. But any time you get a retest of support there is a chance it could hold.

The next important condition of the week is the Gold market that went to a new all-time high. It took out a very good reading at the May high was 610 weeks off the August 99 bottom. Now it’s at 621 weeks where the range of the 056 chart is 621. As I told you earlier, I fully realize these numbers are different than the cash chart numbers but we’ve seen any number of long term continuation charts influence the action, even as they merely moving targets. Thus far, we haven’t seen any topping action in Gold.

That leads me to the equity market which seems to riding the slope of hope suddenly. When QE3 is on the table the market seems to rally. Take it off and it backs off. That’s hope that the Fed smoke and mirrors will work. We still hear talk of the soft patch which has me concerned for the market because a move up to the high and back hasn’t changed anything. You won’t get an admission out of Helicopter Ben or anyone on television that the soft patch is anything more than transitory UNLESS THE STOCK MARKET FALLS ON ITS FACE.

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