Tuesday, October 26, 2010

QE2 in Q4

The past two months of monster stock price rises are being attributed to inflation of stocks due to the falling dollar. The Fed has been pumping money by the billions daily into the world economy through POMO, and you can compare the inverse relationship between the Dollar Index to the S&P 500.

Traders are talking about just staying out of the market, and blaming all the noise on high frequency trading algorithms. And now I've heard two different guys in radio interviews claim that the rising prices aren't due to current POMO pumping, but due to anticipation of the upcoming Fed's Quantitative Easing, Part II; also known as QE2, or QE Lite.

I've been looking for turnaround signs to cause the market to dip back again, probably right after the elections on November 2. Marc Faber suggests that the signal won't be elections results, but the Fed announcement.

I am currently short, and I'm sweating for jumping in too soon! But the thing I'm starting to notice is that the Russel 2K is staying flat, while the Dow and S&P are fluctuating more wildly. There is a dissonance forming between the indices, and I think it's the cracks starting to form.

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