Two Out Of Three

With yesterday’s elections, and the Fed’s announcement about QE-2, we made it through two big events with only Friday’s unemployment numbers waiting on deck.

The elections turned out pretty much as expected, so there was no noticeable effect on market behavior or the general trend. I was watching the intra-day charts when QE-2 was announced, as confusion reigned at the very beginning. Take a look at the S&P; chart above.

The markets rallied briefly, spiked down sharply and head back up. The volatility, and the speed with which prices changed, was truly remarkable. In the end, however, it was just another modestly higher close as we were honing in on the 1,200 milestone level.

As an aside, please note that the gold and oil figures in the above chart reflect Wednesday’s afternoon trading and not the morning session.

The Fed’s move to buy $600 billion worth of longer-term treasury securities over the next eight months was pretty much in line with expectations. For the rest of us, it simply means that interest rates will remain low for the foreseeable future and might even drop further.

I am certain that Wall Street will me monitoring any progress in the economic arena closely, because of all the hype leading up to this announcement. High expectations about the outcome have already been priced into the current lofty market levels.

As I have noted before, personally, I don’t see any merit in these efforts, but time will tell if the Fed can pull this economic cart out of the mud. My concern is if QE-2 fails, as I believe it will, are there any more bullets in the Fed’s gun that can be used?

If not, and Wall Street as much as gets a whiff that things are not turning out as anticipated, this rally will over in a hurry.

That’s why I keep pounding on the same theme that you always have to be prepared to exit. Remember, it’s not what you buy that matters; it’s when you sell that is important, because that precise action will prevent your portfolio from receiving a serious haircut.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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