We continue to watch the low volume levitation run as we head towards a denouement of the end of quarter window dressing, Friday’s NFP and the end of QE2 on June 30th. Earnings are good, analyst consensus for 2012 is very strong (too strong?). The hope is that the market might be able to “grow” into a reasonable valuation.
The sell off post Japan was shallow, and the snapback rally has moved up smartly. But as we mentioned yesterday, the volume has been abysmal, and the February highs were not taken out — yet — and they are a stone’s throw away.
Will Friday’s NFP report be a sell the good news situation? The gathering economic strength makes it more likely than not that the liquidity gusher will be turned off at the end of QE2. What might that do to traders thoughts?
And what of the wild card: QE3.
Here’s where things get tricky: It might not matter, because QE3 may already be here.
Keep in mind, Quantitative Easing is a term that was invented in Japan in the 1990s. While many believe that QE3 is dead in the US, from a global perspective, the Bank of Japan’s massive liquidity stimulus and intervention into the bond market is the equivalent of a US QE3.
Relative to the size of their economy, the BoJ spewed the equivalent of their own QE2 — in just 3 days.
How does that liquidity affect how you trade?