The news is bad and getting worse and we have been asked- What is holding this market up?
In our opinion, there are three factors-
1. The strong opinion that The Fed will start QE3 soon
2. The short-term technicals have been bullish.
3. "Performance Risk"
*It is hard to find a trader that does not believe QE3 will be beneficial to stocks- except us.
*Most technical trading programs are now basically the same today. Technical charting used to be an art and now everybody is a chartist. The ATS (Automated Trading Strategies" ) are controlling a larger portion of capital. They are strictly price sensistive.
*A lot of money managers sold in the firat part of August and they don't want to risk the chance that stocks go up at the end of the year and make them look foolish.
What WSR thinks:
The markets are by no means "safe" in here. This time is different in that there really is a lot of structural problems and The Fed has no new bag of tricks. Technicals can change instantly and all the "bulls" can turn into "bears" by mere price movement. The smart money will do one of two things- short or stay in cash. Our 'gut' is telling us that a major "down move" could be just around the corner. This is the only thing that would force The Fed to use their last bullet. The market may drift up a few hundred more as the ATS's try to max out the last bit of this move; however, it probally is not worth it to go long in here.
As for QE? QE1-shame on you, QE2- shame on me, QE3- total strike-out.
There are just too many investors counting on QE3 to pump the markets - they have abandoned their fundamantal homework. They think they all have the "cheat sheet" answers to the test. The markets will give them a different test this time.
