below...around 770, and 760.....there are spots in between but it's a mess,.... then 755.9, 750.8
Edit: I forgot to mention 781...I thought it would be insignificant and 782 would be more important but....
Now that I mentioned 781 it should lose it's significance after they break away from it...so it's a "temporary" thing.
Equities have put in a legitimate 8% rally from the S&P’s springtime low of 1266 with the index currently trading up toward the 1403 target of its confirmed quasi-Inverse Head and Shoulders pattern that was first detailed here nearly two weeks ago in Charts Shifting for Some More Déjà Vu Summertime Style? and then the following morning in Twist to Extend the S&P Higher? What makes this move notable is the fact that it comes after a dismal May jobs report, lackluster ISM numbers and on no real news with Greece still hanging by a thread with the real issue at hand austerity measures.
Clearly, or hopefully, though, investors are loading up on equities for a reason and the only reason that presents itself so well ahead of the upcoming Q2 reporting season that may or may not be decent is tomorrow’s FOMC statement that could promise to pump new liquidity into the financial system through a new round of bond buying. It would be this potential QE3 that would pressure the dollar index down further and cause equities and commodities to rise in a dynamic that is familiar to all investors and was documented here in September 2010’s The Weak Dollar Trade.
Well investors may be hoping that another round of the weak dollar trade will be announced tomorrow but until the spread between the 5-year nominal Treasury and the 5-year TIPS sits uncomfortably below 1.5% for at least a few weeks as a signal of deflationary threats on-the-come simultaneous to equities and commodities deflating too, there is little to no shot that Fed Chairman Ben Bernanke is going inject more liquidity into an already overly liquid financial system, just in the wrong places, with its likely effect to be minimal on the actual economy considering it would be pretty minimal on the stock market at this point, and thus negating the possibility of a genuine virtuous cycle.
And why would the effect of a QE3 announced tomorrow be minimal on the S&P? Because investors have already done for the S&P what QE3 might do for the S&P at this moment with there being a small chance of a move to 1381 yet.
Put otherwise and something that is forever fascinating to me, investors excel at doing Bernanke’s bidding for him such that he can simply steer investor psychology toward or away from the risk-on trade to keep the system dynamic rather than swamped by the aforementioned liquidity that is sitting on the balance sheets of banks and corporations rather than flowing through the real world economy to help propel growth.
Returning to this dynamic in the here and now, it seems to me that this moment may be one such moment of many similar moments with Mr. Bernanke having done a superb job – again – of putting enough mixed messages out there through his officials in recent weeks but with the overall message a tad more dovish that has allowed investors to convince themselves on the heels of several weak jobs report that the Fed will launch a QE3 to help the recovery.
Interestingly, this is true, the Fed will launch a QE3 to help the economy, it just is not going to happen tomorrow and it will not happen until the spread between the 5-year nominal and 5-year TIPS dips below 1.5% for a few weeks as pointed to above with last year’s Operation Twist coming on that spread hitting 1.5% proof of this likelihood when put in the context of 2010’s QE2 when the spread hit 1.19% briefly and truly a sign of deflationary threats for Mr. Bernanke.
What very well may come of tomorrow’s FOMC meeting is some sort of an extension of Operation Twist by which the Fed will continue to shift its portfolio toward longer-term securities from shorter-term securities as was discussed in the aforementioned Twist to Extend the S&P Higher? and maybe this extension does come and maybe the S&P does hit the 1403 target of its small and confirmed “IHS” but this possibility was first proposed under the assumption that the index would dip relatively close to 1292 to put in a right shoulder to this pattern. Such a shoulder shows in hourly form but not in daily form and this is reason to think that the S&P will give way to what is in place of a right shoulder and this is a Bear Wedge that could bring about one of the other Inverse Head and Shoulders outlined in that note that will look for a head down between 1162 and 1230 if not a tad lower.
Proof of the weakness of behind the S&P’s 8% move up shows not only in the S&P’s daily chart that fails to show that right shoulder as has been discussed in recent days, but most truly in its weekly chart that shows only a bearish Rising Wedge that carries the same 1266 target of its Bear Wedge baby and this pattern is – at best – the left shoulder to the severe Inverse Head and Shoulders pattern outlined many times in recent days that will claim its head somewhere between 1162 and 1230 for a target near or above 1500 after months of volatile sideways trading between that low about 1335.
As can be seen in 2010 and 2011, both of those IHS patterns were comprised of a few Rising Wedges with the S&P’s current Rising Wedge looking close to its peak and this suggests the S&P will trade back down into the 1266 to 1422 sideways range and likely take the range lower with it down toward 1162 to 1230. This scenario is supported by a gorgeous smaller Falling Wedge in the weekly chart of the VIX that carries a target of 27.5 as a “helper” pattern to its larger Falling Wedge that carries a target of 48 just as the S&P’s small Rising Wedge is a “helper” to its large Rising Wedge that carries a target of 1075.
It is due to that bearish pattern that a severe IHS that finds its head between 1162 and 1230 is an at-best scenario while it is any sort of real fulfillment out of that Rising Wedge that will likely come simultaneous to the spread between nominal 5-year Treasurys and 5-year TIPS falling below 1.5% and what will be the real signal to a QE3 that will cause the S&P to soar by 20%+ and perhaps create a virtuous cycle.
Right now, however, is not that moment but rather a moment when investors have set themselves up for a disappointment.