ChartWatchers

QE3 SENDS SHORTS SCURRYING

 | 
Living in the Washington DC area, I'm not sure which was more exciting - QE3 or RG3!
 
The market was set up for higher prices as traders anticipated more quantitative easing.  Fed Chairman Bernanke did not disappoint.  By providing a third round of quantatative easing, the Fed aims to stimulate our sagging economy and boost employment.  Traders saw an opportunity and endorsed the plan by buying equities and commodities and bailing out of the dollar and treasuries. 
 
When QE1 was announced in 2008, the treasury market was caught off guard and rates fell precipitously after the Fed announcement with traders flocking into treasuries.  A few months later, when QE1 was increased, again traders flocked into treasuries with the yield tumbling 50 basis points the day of the announcement.  Take a look:
 
Bowley-1

Traders did a much better job anticipating QE2 and QE3, however, with rates tumbling BEFORE the announcements.  Check out how far yields had fallen ahead of the QE2 and QE3 announcements:
 
Bowley-2

I've been expecting QE3 for months.  The money that poured into treasuries and equities simultaneously nearly guaranteed it.  Both the treasury market and stock market sent the Fed the message that further help was needed.  And on Thursday, the Fed delivered and global markets soared.
 
Nearly every area of equities benefitted, but the falling dollar had an exceptionally bullish effect on energy and materials.  If QE3 works as intended, our economy should improve and riskier areas like technology should see rapidly rising EPS.  And it's a subcomponent of technology - networking - where I saw confirmation of a bottoming pattern this past week.  Technically, few areas have as much upside as networkers because they haven't really participated in prior 2012 rallies.  Here's the bottoming pattern:
 
Bowley-3

Several networking stocks look solid technically, but I have my eye on two in particular.  For more details on these two stocks, CLICK HERE.
 
Happy trading!
Tom Bowley
About the author: is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market. Learn More
Subscribe to ChartWatchers to be notified whenever a new post is added to this blog!
comments powered by Disqus