Dreams Of QE3 Dance Through The Heads Of The Bulls

Includes: DIA, SPY
by: Daniel Sckolnik

"Many people take no care of their money till they come nearly to the end of it, and others do just the same with their time." - Johann Wolfgang von Goethe

If Wall Street was looking towards the first quarter earnings season for a sign that it should resume the same sort of optimistic stance that it had taken earlier this year, it is likely that its gaze is now resigned to look elsewhere.

There is definitely a trend resuming, but it appears to more resemble the tendency to be defensive and sell, rather than to view dips as prime buying opportunities.

Though the majority of companies reported earnings that equaled or exceeded expectations, the bar seemed, based on investor reaction, to be set towards the low side. However, with the resumption of instability emanating from the European sovereign debt crisis, and unspectacular data emerging from the domestic economic front, investors seem to be slumping back into fear and uncertainty as evidenced by increasing levels of volatility in the market.

Global investors seem, to a certain degree, only to be finding cheer when they see and hear signs of various forms of quantitative easing and other versions of stimulus. For the U.S. market, the most recent Fed intervention, in the form of its bond-buying program oddly referred to as "Operation Twist," was embraced by investors as a poor cousin of the QE3 that was hoped for, but greeted as a relative nevertheless.

Whatever its lineage, that particular source of Fed largesse is due to expire relatively soon.

For the eurozone, where forms of stimulus are a bit more constrained due to the charter of the European Central Bank (ECB), the brilliant idea of ECB's current president Mario Draghi to goose the region's flailing banks with the clever liquidity solution known as the LTRO was successful beyond general expectations.

In fact, it could have been just enough to stem the serious downtrend that hit Wall Street and the European bourses for much of the second half of 2011, and may have been the single strongest ingredient that contributed to the stellar performance of the equity market in early 2012.

Even China has embraced the game heartily, announcing this past weekend that it will loosen its own monetary policy, a gesture attributed to weaker-than-expected economic data that indicated that growth slowed to a degree greater than expected.

So now, with the market showing a greater tendency towards uncertainty than it had as recently as a few months ago, Wall Street will be paying particularly close attention to this week's Fed minutes.

Not that investors don't usually parse this data to extreme levels. Certainly, that is the normal condition of affairs. Rather, it is in the reaction to the slight hints and winks that will likely set the course the market will travel into the summer.

At the very least, it shall serve as a contributing factor towards the near-term fate of the market, one that is coupled at the hip with the continuing noise that can be heard from the eurozone as it reverberates with the sound of deep dissatisfaction among its electorate.

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

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