"I know what you're thinking: 'Did he fire six shots or only five?" Well, to tell you the truth, in all this excitement, I kind of lost track myself. But seeing as this is a .44 Magnum, the most powerful handgun in the world, and would blow your head clean off, you've got to ask yourself one question: 'Do I feel lucky?' Well, do ya, punk?"
I say this because it seems to me that there are currently more than a few punks out there in the markets who still seem to think they stand a sporting chance of profitably short-selling the indices, despite being faced with no less than three Magnum-toting Harry Callahans. And, unlike in the case of Dirty Harry, there is no doubt whatsoever that the Fed, ECB and BoJ have the full compliment of ammo.
QE drives the S&P
The first two rounds of quantitative easing fired by the Federal Reserve - and the ECB's LTRO - were bad times to short equities. I know this because I tried it myself during QE1 in early 2009. And, I got my head blown clean off, figuratively speaking. By the time the Fed brandished QE2 under the market's nose, I had wised up to the idea that it might be safer – and more profitable – to comply with Dirty Ben's wishes.
FTSE's targets
I do not accept for a moment the notion that this latest liquidity salvo has already been 'priced in' to stocks and commodities. The experience of QE1 and QE2 showed that it paid to be in the markets more or less for as long as the money printing continued. Why should it be any different this time round? To be clear, then, I am expecting before long the Dow to power to a new all-time high and the FTSE and DAX to make new post-2009 highs.
Nasdaq's mild QE pullbacks
This is not to say that there will no be corrections along the way. It wasn't one-way traffic during QE1 and QE2, and it won't be this time round. But the pullbacks should be relatively short and brief. The end of a choppy pullback of 5 to 10 per cent would be a perfect opportunity to re-establish long positions, whenever it next happens.
Will Nichols has challenged me to justify my recent claim that volumes have lost their predictive power. According to my research, volumes have been a useful indicator in the past. A peak in traded volumes on the New York Stock Exchange has heralded the end of a bull market in the majority cases. Thirteen of the 15 major peaks in the Dow Jones index between 1928 and 2007 were preceded by declining volumes, by an average of six months.
Ever-decreasing volumes
In today's bull market, volumes have been declining more or less ever since the lows of early 2009. Had you interpreted this ongoing decline as a sign of impending top and exited the market, you would patently have missed out on some massive gains. Even if volume hadn't clearly lost its significance, however, I would be loath to heed this indicator's bearish message today over that from the central banks. This punk doesn't feel that lucky.
