To QE3 or not

During QE1 and especially 2 there was a motto with a 4 letter expletive in it, "Just Buy the Dip", which worked out pretty well.

Things were a little different at that time, the mistake we often make is to assume a policy at a certain time in the past will work the same right now when many conditions aren't the same such as inflation, such as the perceived strength and now the known weakness in Emerging Markets, the EU situation which was hypothetical contagion back then and now real contagion, manufacturing and especially as it relates to inflation and margins, the unknown limit of policy then vs the known limit of policy now as Bernie himself even acknowledged during the presser.

The bottom line is we can get and are getting information now, but we also need other market environments to gather additional information before jumping to a hasty decision. For instance, on a market decline we can gather information as to whether smart money is buying because they sure aren't likely to chase stocks on a day like today and volume I think proves that.

Here's a chart from QE 2 I just received...

Speculation from Jackson Hole sent the market higher, after QE2 was announced there was a "sell the news" event, that is what I'd like to see because that's where information can be gathered as to whether smart money is buying "the dip" or not.

Right now the IWM, QQQ, and SPY/DIA to a lesser degree are showing negative divergences that I believe will bring them down as sure as the AAPL positive 5 min sent it up.

There's probably an argument that can be made to short some of these here as they can easily be covered on any move higher with pretty minimal risk, while you may not get the chance to short them at these levels. I'm fairly content with what is already positioned.

There are some other markets too that I have pointed out, but the main point is I'm not making any drastic changes on a 4 hour move, which is almost always a knee jerk reaction and against the bulk of the evidence without decent evidence to support that change.

More to come, I want to watch the close carefully.