Frothy Tides for QE-II

January 19, 2011 | 0 comment

The Fed has embarked upon the “QE-II ship,” and we are well on the way for it to be completely discounted, with no likelihood of a QE-III ship setting sail [referring to the U.S. Federal Reserve's quantitative-easing tactics].

Recent U.S. economic data have been mixed, but on the stronger side. That said, our concerns stem from a number of known areas, but not given sufficient shrift [are]: sharply rising muni-bond yields, rising U.S. bond yields and a possible China “hard landing.”

Technically speaking, the Standard & Poor’s 500 has major support [in] the long-term 45-month exponential moving average at 1137, with prices rather archly overextended at current levels.

This, when coupled with the “frothy” sentiment figures, would argue that the risk-reward is skewed to the downside, for the short-term, toward 1220. Thereafter, a resumption of the rally seems appropriate, although the strength is yet unknown.

Richard Rhodes is the founder of Rhodes Capital Management, Rhodes Trading Group, and The Rhodes Report a macroeconomic and stock trading newsletter. The Rhodes Report seeks an absolute return through a long short strategy that trades equities, ETFs, and inverse ETFs that offer the greatest potential for positive portfolio returns in both bull and bear markets.

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