I was reading a writeup from a fairly well known analyst yesterday stating confidently that QE announcements are followed by bull runs of 10% to 15% in the following four to six weeks. He shall remain nameless, but the evidence doesn't really back up that view. It's true that when QE1 was announced in November 2008 there was a rally from the 800 area to the January high at 943.85 but there's a very good argument that was coincidental, as SPX was already rallying from a very oversold short term double bottom at 741.02 into the January 2009 high before the final bear market decline into the March 2009 low. The picture from the announcement of QE2 looked rather different.
When QE2 was announced on 3rd November 2010 SPX had already been rallying hard for a couple of months. SPX broke well above the daily upper bollinger band into a high within a couple of days which was then followed by a sharp retracement into the end of November. It was four weeks from the announcement before that high was tested again and six weeks after the announcement SPX was only 2% or so higher than that post-announcement high. Here's the QE2 period chart on the daily with bollinger bands:
here. This may all be sounding very familiar, as it should, as the sequence of events over the last few days has so far been almost identical. That doesn't mean that the rest of this analog will play out as well, but the similarities so far are very striking.
On the daily chart SPX closed back within the daily bollinger bands yesterday. Generally speaking I would expect SPX to remain within the bollinger bands for a while now, though we would sometimes see SPX ride up the underside of the upper band for a while. If we see further retracement then I have the middle bollinger band in the 1422 area and rising channel support in the 1400 area. It's worth noting that the main channel support that I was watching at the QE2 announcement was broken on the retracement afterwards, and if we see that happen again then channel support would most likely be broken in the 1410-20 area and there is still very firm support in the 1400 area:
- This blog has a copy of all header posts that I publish anywhere, so that anyone who is interested in seeing what my thoughts are on the markets can find them easily.
- I will be answering questions and responding to comments, so feel free to respond to any posts and I will see your comment even if it is not on the most recent post.
- If you're interested in seeing any intraday charts I post, I do that on twitter, and my twitter handle is @shjackcharts.
- The charts in the posts are as large as I can practically make them. if you would like to look at one more closely, click on it, and the link will take you to a larger version at screencast. If you click on that again, you will get a full page version, and can use the resizing function on your browser to enlarge parts of interest further.