Clues to QE3

While it's not very likely there's going to be a major "Ah-Ha!" event that answers the question of whether the many dichotomies and differences in QE3 such as the lower SPX dividend yields now vs. at past programs and the nearly 50% higher stock valuations. There are other questions such as inflation and how much inflation will not only pressure manufacturers and consumers even more, but how much the F_E_D will allow before dialing back asset purchases. You don't want to be the person who just bought a stock with a 30 P/E on expectations of $40 bn a month in asset purchases and then have the F_E_D come out and say, "We are not making any more purchases until inflation subsides". There are a whole host of questions, many I can't even imagine, but this is why we gather evidence.

One thing I wanted to see was how underlying action looks in to a pullback, we didn't get a very big positive divergence, it's respectable in normal times, but doesn't look at all like loading up the truck for QE. Another way to gather information is on the move up, dos it hold together well or is there distribution early in to the move? Now we have at least some data o this second point, it's nowhere near conclusive, but it's going to be putting a bunch of pieces together and see what the picture looks like.

I'm going to try to draw as little as possible on the charts unless I need to point something out, you know what divergences look like and confirmation is when 3C moves with price with no divergences. There's nothing here that is earth shattering or in my opinion requires any special action to be taken, it's just pointing out the obvious. I also don't think there's an impending downside reversal, from the positive divergences built up yesterday for a short term move up.

 SPY 1 min, good confirmation until the highs today

 SPY 2 min excellent confirmation until the same highs today.


 SPY 3 min also trouble at the same highs today

 SPY 5 min positive divergence and the chart is in line, so I don't see these as major signals that will change the short term trend, but it does look like consistent distribution at the highs of the day thus far.

I didn't add as many charts for the other averages, you get the idea.

 DIA 2 min

 DIA 3 min

 DIA 5 min, also consider where the DIA is in relation to Friday's highs.

 QQQ 3 min

QQQ 5 min

I couldn't find much in the IWM, but the IWM hasn't moved much either.