Searching for Clues as the Fate of the World Hangs in the Balance

In this article, I look for clues in the charts as the fate of the markets and the free world  hangs in the balance on the actions (or inactions) of the FOMC.  We must wait until mid – September, and until then, the markets will be ripe with rumors.  The Fed is already in full court press mode as the governors take to airwaves to promote their support for the economy.  From this perch, QE3 appears to be coming or some form of monetary easing, and it is only a matter of how much.  You don't build up expectations, and then suddenly pull the rug out from under the market.

Monetary easing will see risk assets rise.  Precious metals, oil (black gold), inflation sensitive assets  and equities should all do well.  QE3 is inflationary, and the usual suspects will be moving higher.  Debasing the Dollar has become a national past time, and a lower Dollar will go hand in hand with QE3 should this come to pass.

I showed this chart before and it is a daily chart of the PowerShares DB US Dollar Bull (symbol: UUP).  See figure 1.  As long as UUP closes above the 20.92 pivot, the US Dollar has life and QE3 (or some form of it) will have minimal influence on the equity markets and on the greenback.

Figure 1. UUP/ daily

The next chart (figure 2) is a weekly chart of a continuous futures contract for copper.  A weekly close above the key pivot point at 4.1078 is bullish.  This level was resistance, but the anticipation of QE3 has seen prices re-capture this level.  This is now support with the trend turning up.

Figure 2. Copper/ weekly

The last chart (see figure 3) to search for clues of QE3 comes from this weekly chart of the United States Oil Fund (symbol: USO).  $31 is support and it is very significant; a close below these levels would be bearish and indicative of a recession.  For now, USO is bouncing from support and like QE3, it still has life.

Figure 3. USO/ weekly

Conclusion: it is too early to tell whether QE3 will be a reality or how much it might be.  Hope of QE3 is currently driving investor expectations.  These charts are not providing any consistent clarity.