After last weeks QE3 announcements – markets went RED…. yes RED – and many people would probably think now as we have QE3 inifinity we can only go up up up…. and then I have to say – you are WRONG , 2 good examples is look at stock markets in FTSE and especially Japan.

1. Look at the Japan chart I made – you see Japan had QE for the past many many years, but stock markets has only been going down. The more QE they make the less effective the program will be – also because much of a QE right now is already priced into markets.

2. Sentiment is still extreme bullish and this is suggesting that we should be close to a major high – if we get a push to new highs 1485-1500 or not, does not matter so much – I believe its close to a top here looking further weeks ahead.

3. US dollar still depressed – I think US dollar is in a bottoming process in this area – might see one push lower , and might not – but it should be close in this area also suggesting a major high is close – as when the US Dollar moves higher it will put a pressure on stock markets.

4. I think Gold/Silver is also getting close to a top , I recommended to buy gold/silver this summer – I still think its good longer term investment , but I think a decline is very due in gold and silver too

5. If you look at SPX – I see THIS week we had as a possible BULL FLAG setup – which tells me a possible move higher to new highs 1485-1500 possible early this week. This would also set up a BEARISH divergence on RSI daily , the same setup when we made a BOTTOM in June 2012 with a bullish divergence – just take a look at the charts.

6. I took out my shorts at SPX 1450 on Thursday as I thought a bounce/rally was imminent from there – so I hope we get an early fast push up in stock markets to 1485-1500 , I might be wrong and we might not get it – IF WE DONT GET IT FIRST DAYS (Monday or Tuesday) then I will go heavy short again as my intermediate picture tells me that we are close to a top here.

7. VIX still near the big green trendline , it might have one more test to it before markets topping out, but over the past many years VIX reached this line , markets has made a major high. (Now we talking about it on weekly and monthly basis) so we should be close.

Conclusion: So all in all – what do I expect from this week? By STATISTICS this week is VERY BEARISH usually , so I see bears have a very good chances of striking back hard – however I’m seeing some small bullish patterns which may play out EARLY THIS WEEK (MONDAY-TUESDAY) possible and therefore I would like to see ONE PUSH HIGHER to 1485-1500 area to form a negative bearish divergence and then form a top – and then after this a hard decline. So plan for this week is I will get into shorts again hopefully on a lower level and higher level on markets.

My near term target for the high is 1485-1500 and if we get this level I will load up on shorts again. October also usually one of the worst months for stocks in the year – but so was September? Will October be different ? Time will tell…

Right now I’m only cash + small caps setups – ready to add heavy into shorts if we get a fast move higher.