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QE III Targets

|Includes:SPDR S&P 500 Trust ETF (SPY)

Despite alarming news coming out of China about slowing growth and exports, and in the midst of a raging banking and financial crisis in Europe that's not likely to be resolved anytime soon, the US markets keep powering up. Not only that, but the main indices are within spitting distance of their April '12 highs.

That's because investors are expecting QE III, we are told.

If that's the case, then it should be useful to get an idea of how far this rally could go. And the chart below may give us a pretty good idea of what to expect.

QE I is credited with a 550 point SPX rally. QE II advanced 353 or about 65% of QE I. Then came operation Twist, whose effect was almost equal in size to that of QE II.

Based on these precedents, and using the same ratios, one could reasonably expect the SPX to reach a target area in the vicinity of 1500 - 1600.

One can narrow the target zone even further by noting that the Y2K and the '08 highs, marked by the blue channel, are likely to provide a formidable resistance for any rally attempt.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: SPY