In focus: QE forever

By Lawrence G. McMillan

The stock market loves the fact that the Fed announced an other round of easing (QE III) but also hinted that such operations would continue into the foreseeable future (QE forever).

The Standard & Poor’s 500 burst to new highs on that news, eventually peaking (for the time being) near 1,475 last Friday. That takes out the highs from mid-2008, leaving the next target as the last-2007 highs near 1,500. We would not find it surprising for this market to eventually work its way all the way back to the all-time highs of October, 2007, near 1,570.

In the short term, the market is a bit overbought, so a correction might be in order, which would take it back toward the most recent support area of 1,430-1,440. You can see from the chart below that SPX is hovering near the top of its trading channel. A full-blown correction would take SPX back down to the 1,400 level, where there is not only support from the bottom of the rising channel, but also from the trading range of 1,395-1,420 where SPX spent a great deal of time in August...

To read the full article, subscribe to The Market Watch Options Trader.