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| Figure 1. UUP |
So far, the market has not responded favorably to the Fed's twist idea (selling shorter maturity bonds, and buying longer term bonds). In an earlier post, I had discussed the possibility that absent QE we could enter a deflationary environment. It seems that we are starting to enter that kind of environment (see figure 1 above). The UUP (US dollar index) has shown some significant strength lately. The longer term trend is still down, so it will be interesting to see how it holds up here. I still think there is a possibility of an QE3, especially if the market continues to struggle.
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| Figure 2. SP500 |
Above is a 2 year daily chart of the SP500. The SP500 is currently below the 50 (yellow) and 200 (blue) day moving averages and both moving averages have a negative slope. The markets looks like it is going need much more time heal either through price and/or time. The correction we had during summer of 2010 happened while the 200 DMA remained with positive slope and the SP500 did fall that far below the 200 DMA. In addition the Fed announced QE2 during the summer of 2010. The price action currently does not look very constructive.
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| Figure 3. Investor Sentiment |
In an earlier post I stated that I felt that my feeling is that the investor sentiment is in the Fear/Desperation phase. I think further downside from here is still a possibility. I will change my outlook if I see evidence in the price action. The current market environment remains best suited for very short term traders. Cash is probably the best position. My preferred trading setup is for long side swing trades and I think it is going to be a while before we are in such an environment again. So far we have only had short bounces up and it has been very volatile. My trading is going to be very minimal until conditions improve. I have also been scanning hundreds of stock charts and I am just not seeing low risk swing trade set ups.
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