The Federal Reserve’s decision on Thursday to proceed with QE3 + was not a surprise to us, albeit for most of the market participants, and equity markets responded accordingly. Volume gains on Thursday and Friday were impressive. Additional follow through early this week is likely. However, news from the Fed came at a time when equity markets already were significantly overbought based on short and intermediate technical indicators. Technical action on Friday was an interesting “tell”. Equity markets moved higher at the open, dropped close to break-even just before the close and closed strong on end-of-day buy orders. Not an impressive follow through!
The weakest three week period of the year starts this week. The period is related to pre-third quarter earnings report news. The next three-week period historically is when negative guidance is most frequently released by corporations and when analysts reduce estimates and recommendations. The frequency of negative guidance since release of second quarter results has been unusually high this year. We see evidence of history to repeat during the next three weeks.
091712 CGI Morning Market Commentary & Weekly Charts