stock market distribution

The Fed has been cautious about its statements regarding Quantitative Easing  primarily because it doesn’t want to spook the markets and have interest rates rise too quickly, this could effect the real estate market. I’m not sure that they are that concerned about the stock market which they have been fueling for quite some time. The Fed basically became the only real buyer of agency debt and mortgage backed securities pushing everyone else out of the way. With investors being shut out of those markets they had to look elsewhere. So where would the relatively conservative investor invest his funds? The answer was real estate or the stock market and both markets have been very strong.

We will eventually will see the Fed back off on QE and this will cause interest rates to rise which will attract buyers who have been very successful in the stock and real estate markets. The question is are the markets actually going through a period of distribution or will they move even higher.

From a technical viewpoint:

We have tested the last point of supply (LPSY) and the markets have moved to new highs. This could be considered as an upthrust after distribution. This is a point of further distribution allowing those to exit the markets at even higher prices. What we are looking for is price and volume interactions and currently they do not look very strong. If we were seeing a really strong market then a breakout to new highs would be accompanied by wide price spreads to the upside, with few sellers and many buyers. This is not happening.

Additionally the market are very overbought and at a minimum we should test the halfway point of the most recent rally from 14,551 to 15,498. This would be a retracement of about 473 points or to about 15,025 which would take us right back to the ICE.

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