NEW YORK ( Real Money) -- Given how the market rallied for months following the announcement of QE1 and QE2 it isn't at all surprising that we had a euphoric response to Helicopter Ben's QE3 last week. The big question now is whether it is different this time or can the market run for months like it did previously?Although the it's-different-this-time argument is always dangerous, there are a number of reasons to believe that this may be the case. First and foremost, the reason we have QE3 is because the first two rounds of QE obviously failed to achieve their goals. The Fed printed huge amounts of cheap money that boosted the stock market, but didn't fix the economic issues that were the primary problem, especially the stubborn high unemployment rate. The other thing that is different this time is that the measures are open-ended. The Fed is going to keep on buying mortgage backed securities for as long as it takes. The problem is that if that doesn't work, it is pretty much out of ammunition. There isn't much more that monetary policy can do and obviously our politicians are useless when it comes to fiscal policy. For quite some time the market has benefited from the dynamic that bad news is good because it will force the central banks to act and good news is good as well because thing are improving. But now that we have open-ended quantitative easing, from both the Fed and the ECB, we are going to shift back to a more traditional environment where bad news is bad and good news is good. The economic reports will likely see more normal reactions. The central bankers no longer have the capacity to adjust to bad news with more announcements. They have already addressed the potential of future negatives by making their plans open-ended. Maybe they can increase the size of their programs, but they have already fully committed themselves and are unlikely to offer up anything else very soon. So does this mean that the market is on the verge of topping out?
The good news for the bulls is that the market has some very strong momentum, there is substantial performance anxiety and quite a bit of pessimism. As we have seen in the past the market has a surprisingly strong inclination toward V-shaped moves, even when it is extended and a sell-the-news reaction seems likely. Virtually everyone, even the hardcore bulls, would agree that we could use some consolidation at this point, but the market has been quite stingy in giving the dip buyers much of an opportunity. The big dilemma at this point is that entry points are tough. It has been a market of chasing the last few days and if you have cash to put to work you aren't seeing many easy entries. The dip buyers should provide some pretty good support and I'm not looking for the market to suddenly fall apart. But without some consolidation it is going to extremely tough to put money to work. I've reduced positions quite a bit into the recent strength and I'll be watching for setups to develop. I'm hopeful that with the central banks on the sidelines we will see the focus shift to stock picking. Keep in mind that the price action continues to be quite positive and that anticipating weakness has been a disaster. Let the market be your guide.