After dipping into the 40's, the Price/Volume Diffusion index (PVDI) has rebounded to levels above the 50 demarcation. Just see the chart below.
In of itself, a PVDI above 50 tends to indicate higher equity prices for a few months out. I would also think that the continuation of QE (lets just call it what it is, QE Infinity) not only increases the probability of higher equity prices, but also raises the chances of a spike in prices. That said, I remain firm in the belief that the economy remains far weaker than most conclude. In fact, the weakness in the S&P 500 and the strength in treasuries in recent days may just be a reflection of this eventuality in the minds of traders and investors. In any event, it may be more important to watch the trend in the PVDI. A trend change in the PVDI from above 50 to below would probably indicate lower future equity prices.
In of itself, a PVDI above 50 tends to indicate higher equity prices for a few months out. I would also think that the continuation of QE (lets just call it what it is, QE Infinity) not only increases the probability of higher equity prices, but also raises the chances of a spike in prices. That said, I remain firm in the belief that the economy remains far weaker than most conclude. In fact, the weakness in the S&P 500 and the strength in treasuries in recent days may just be a reflection of this eventuality in the minds of traders and investors. In any event, it may be more important to watch the trend in the PVDI. A trend change in the PVDI from above 50 to below would probably indicate lower future equity prices.
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