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Wild Stock Market Week, QE3 Is Here To Stay......

Stock-Markets / Stock Markets 2012 Sep 15, 2012 - 12:42 PM GMT

By: Jack_Steiman

Stock-Markets

A lot of anticipation is the way to explain the week that just passed. There were two major events to come as the week wore on. Apple Inc. (AAPL) was going to introduce the IPhone5 on Wednesday, while everyone, and I mean everyone, tuned into the words from Mr. Bernanke on Thursday about whether he was going to implement a QE3 program. I didn't think there was a chance he would do it, but more on that in a minute.



The Apple launch of the new IPhone was a huge success. The stock tested down a few times, threatening to lose key support at 657, but it refused to break, and very late in the day it surged higher. That's surely a win for the bulls! Goes to show you just how important Apple has become to the markets performance. I can't say it's healthy when one stock has so much power, but it is what it is.

The joy from Apple was gone over night as everyone focused on the Fed Bernanke on Thursday. To my surprise, but apparently not to the market, he did implement QE3, and in a very big way. A ridiculous stimulation that will continue monthly for as long as need be, or in other words, until unemployment meaningfully starts to improve. That will likely be quite a long time from now, so we are going to be flooded with cash for some time to come. The market liked it. It rallied as expected, and it continued to do so a bit more today, although extremely overbought conditions put a cap on today's move higher. It was a solid week for the bulls. Other than overbought there's nothing on the bearish side of the ledger.

So now we have all this cash sitting out there for the banks to use in order to help stimulate everything from small-to-big business ventures, not to mention the hope of stimulating new home buyers. Fed Bernanke, and his actions, have basically forced the market to move higher. All this cash has to go somewhere, and since interest rates are basically zero, and since they'll stay that way for at least another three years, it will be very tough to start a new, bear market for a while. The catch is this, however. What if the cash doesn't get used because getting loans is too tough for most and those who can get it, don't want to take the risk? What if those that do get the cash can't pay it back in time because the economy falls apart? They lose their jobs, etc.

Debt would rise further than it already is, and things would get very nasty for the economy. If the free cash made available does not stimulate employment, many who get the cash won't be able to do the right thing. Fed Bernanke knows of these risks, but is so desperate he is willing to take that risk. Things must be far worse than any of us truly understand to take these steps. You wonder what's really going on out there. We now have the cash. In the end, will it be the free money that finally hurts us all? Only time will tell. None of these programs have ever worked on the level intended. It has never stimulated employment, nor has it stimulated housing, the two keys to a healthier economy. Let's hope things find a way to work this time.

The market broke out this week above that horizontal headache of resistance at 1440. It is now decently above, but we're overbought. It would be bullish if we back tested while unwinding those overbought oscillators. If we held, and then shot back up, that's technically appropriate. We shall see, but thus far, things have gone the way the bulls had hoped. With some distance now away from 1440, we can pull back and unwind while still not losing key resistance now turned support. The trend is now clearly higher, and we may just stay overbought for some time to come, but there is some complacency out there.

Put call readings are getting more consistent at below .60. Bull-bear spread is moving higher as well towards that 30% level of more bulls. Some red flags are out there for the very short-term, but bigger picture, it's hard to argue with all the available cash being made available by the Fed.

Have a nice weekend!

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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