Potential Warning Sign for the S&P500?

Today, Fed Speaker Ben Bernanke said that to taper the QE program would be premature and would have negative effects if they were to end it soon. Citing unemployment numbers, which by the way are hovering at 7.5%, still higher than healthy economies expect, Bernanke said "a premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further".

As expected, stocks rose on the speech. While they prematurely rose 40 points beforehand, just minutes after the prepared news surfaced they continued to rise to 85 points on the session. As the potential for tapering was mentioned the markets lost ground, but continued to make up lost ground throughout the entirety of the speech.

In general, the economy has shown renewed signs of strength, with an average of 208K jobs added per month since November, up from 138K per month for the previous six months. These signs of strength mean little if they are not in line with what the QE program hopes to achieve, however close they come.

One potential warning sign comes from the current divergence of the AUD and the S&P500. Historically, strong bull stock markets are met with Aussie strength, but as this chart shows: http://media.dailyfx.com/illustrations/2013/05/22/australian_dollar_and_the_s_and_p_500_body_Chart.png
the current divergence is quite large and noticeable. The first of two scenarios that arises from this divergence is that there is a large bubble being perpetuated by the Fed's QE program of purchasing $85 billion a month. This implies that a crash is coming, although with the continued support of the QE it will be held off for at least a little while. The second possibility is in line with the first, that a large sell-off or correction is coming for the S&P500. Even though in the previous post I said that Deutschebank and Goldman Sachs have revised their year-end goals for around 1,800, it already includes the possibility of a sell-off and a continued rally.

Critics of the purchase program fear that the continuation of extremely low interest could cause inflation to skyrocket, or at least inflate a bubble of the equities market, something that potentially could burst and disrupt the economy as a whole, similar to the housing market crash. These fears were addressed by Bernanke through confirming that if tapering were to begin, it would not be an all-at-once exit of the QE program, stating additionally that the pace could increase if it were deemed necessary.

All in all, long positions for the S&P500 are expected to taper out as the end of QE comes into view. We are in phase two of the growth, where common investors are flocking to add long positions to their portfolio in light of the S&P's recent gains. As the positions from common investors increase, it is safe to say that we are closer to the peak than anywhere else and are in the later stages of either Elliot Wave theory or Dow theory, both are signs that the downwards move is imminent. The correction, or crash, will most likely come sometime in the upcoming months, but only time will tell.