With todays upside reversal on strong volume, it is possible the institutions see the end of quantitative easing as bullish in the long run for the market. However, a tepid recovery in the economy, stubbornly high unemployment, and the record level debt ceiling which is being kept at its nosebleed level are huge headwinds that market faces going forward. Whipsaw environments such as this one are never pleasant but par for the course when a material transition is happening in the market, namely the end of quantitative easing.
The fed may not give the markets QE3 immediately but a form of QE is coming from Europe as European central banks continue to print money to rescue the PIIGS (Portugal, Ireland, Italy, Greece, Spain). Greece was the first, but the others could very well be next.
With the end of QE2 right around the corner, debate as to whether this is good or bad for the markets in the long run will rage on, thus could translate into choppy market action. While it would be easy to just stay out of the market completely, the market lives to surprise and a new trend often emerges when the majority least expect it, so it is worth staying vigilant and watchful for clues left by leading stocks and major indices.
For those holding silver and gold ETFs, we are using a violation of the 50-day moving average on GLD as our sell signal for all silver and gold ETFs.
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