The Promise of QE3 Lurking in the Backdrop


Author Larry Berman

Posted: 25 June 2012 re-posted from etfcm

The S&P 500 has traded back into the initial key resistance zone from the previous support levels between 1340-1357 and the key retracements from 1345-1363 (yesterday’s high). Initially, the market should stall here and the FOMC announcement sets up the day that way, but if there is a promise of liquidity in the pipeline, corrections should be very shallow. We took a little off the table yesterday, but not much. We could be very surprised how much the promise of QE3 lurking in the backdrop supports this market for a while given that Europe promises a big bazooka of support for their debt issues too.

Ultimately, earnings need to grow for the market to do much better, and when P&G warns that things are slowing, that’s when all should sit up and take notice. It’s one thing when a cyclical like FEDEX warns, but P&G is another. We expect the Fed to extend the twist today and use words suggesting balance sheet expansion is likely if warranted. That should be bullish, but they may not say it that way. According to one survey on June 18th, 58% of economists expect them to extend twist.

 

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