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How Will Equities React When QE Liquidity Hits This Week?


While the market remains in a dangerous position, the Fed joins the game on November 14.

MINYANVILLE ORIGINAL Liquidity is the main driver of prices in equities, since excess cash usually finds its way into assets, while a paucity of cash usually necessities the sale of assets. The QE-Infinity liquidity will start hitting the market this week -- the first MBS purchases are scheduled to settle on November 14, so now we'll finally see how this will impact the market. As noted on Friday, several markets are hovering near long-term support levels, but this zone is a key inflection point, and breakdowns of support here could easily lead the market into a rapid drop.

The chart below outlines several markets, and the bottom line is: Bulls need to make a "last stand" here or risk a panic sell-off.

Click to enlarge

The S&P 500 (INDEXSP:.INX) chart below notes the potential air pocket beneath this price zone. This results from the overlapping summer price range -- markets can race rapidly through such ranges, so a failure of support here could drop SPX quickly into the 1320s.

Click to enlarge

So... is there any reason for bulls to have any hope here? This is a dangerous position for the market, so while I'm not encouraging front-running, there are a few signals that bulls could capitalize on, which I'll outline below. It's a case of potential energy, but it's up to bulls to grab the ball and run with it.
No positions in stocks mentioned.
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