The “QE is off” Trade
- Posted by TheArmoTrader
- on March 14th, 2012
Over the past 2 days, we saw what I call the “QE is Off” trade. What does that mean? Basically, asset classes that were going up because of the $FED’s “Expanding balance sheet” get sold off. In turn, asset classes that were going down because of the $FED’s expanding balance sheet are going up.
Gold (GC_F, $GLD)
Gold is getting sold off. This has acted as an “inflation hedge” (even though there is no historical evidence for this) as the $FED’s balance sheet has ballooned over the past 3-4 years. Typically, over the past 3-4 years, Gold has actually traded like a Risk Asset (as I have noted, twice, in the past). Will we see another divergence (like we saw in mid 2011) over the next 2 ish months? It sure looks that way as of right now.
Another asset that got hit because of the “QE is off” trade are treasuries. Treasuries have moved up over the past year because of two reasons. The $FED’s actions (commitment to low rates, other monetary operations) and the fact that we are in a risk-off and deleveraging cycle, which puts a constant bid under the safest asset in the world.
As you see, there was some heavy technical damage done over the past 2 days on high volume. I would expect more selling in the intermediate term.
The dollar also joined in on the “QE is off” trade. However, the dollar was pushed up as QE has been viewed negatively for the dollar over the past few years. We are sitting at 2 month highs as the dollar looks ready to push towards a test of the YTD high.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science. He started trading in September of 2008. He concentrates on using technical analysis and reading the tape to enter the best risk/reward trades. The stock market to him is one of the greatest inventions by man.
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