"Thank you for warning us of the need to be vigilant about detecting when the signals from the Fed (or the ECB, B of E etc) indicate that the QE stimulus is about to be withdrawn. Could you say some more about how simple investors like me might start to monitor this? My sense from what Buffet is saying is that once the Fed makes an announcement, the market will move quickly and that it may be too late to lighten. Your good guidance has alerted me to the point of monitoring extensions beyond the 200 MA but is that all I can do? Any further guidance much appreciated, and thanks for what you and Eoin do - it's priceless to unsophisticated investors like me."

And:

"Thank you for your service. Listening to your commentary last night re what might happen when QE ends. You mentioned that when this happens we should lighten up on our positions. I wonder if you might be able to clarify thoughts a little bit:

"Should we start to panic when the first attempts at pulling back on QE start or just talking about reducing?

"Would this apply to all stocks inc China, Japan, India and US and commodities equally. In the past all assets seems to have been correlated and all crashed together in 2008?

"Finally I found this presentation from David Rosenberg quite interesting. He has long been a proponent for deflation and bonds, but seems to have changed his view now to include inflation hedge. I am providing the link."

And:

"Fuller Money has given some emphasis to the danger posed to equity markets from the end of QE.

"Is it not true that as an economy emerges from recession bond yields (short & long term) usually rise along with equity markets? Is it also true that only when the economy overheats and inflation threatens that the Fed pushes rates too high that causes equities to suffer? It seems likely that the Fed will aim not to end QE until natural rates are already tending to rise in response to economic demand. A quick google provided the following explanation of the relationship:

"While the above is an analysis of only the relatively recent history, an interactive chart showing the relationship over the past 43 years is shown here:

"Let's be optimistic."

David Fuller's view My thanks for your thoughtful and helpful comments on a subject certain to be of interest to all investors. Experience is unlikely to be the big variable among investors in dealing with the end of QE, because none of us have previously lived through it as investors. However, common sense and behavioural awareness should be helpful, as always.

Starting with the closing comment from the third email posted above: "Let's be optimistic", I endorse this view, albeit with a qualification. I am certainly optimistic about the environment following whatever shakeout we see as the USA's QE ends in the next few years. As I have said on several occasions recently, I suspect we will be seeing evidence of the next secular bull market before the end of this decade.

The end of QE is a predictable hazard, very likely to interrupt the current bullish environment and further improve valuations before the next upswing. However, I do not expect another blow-out similar to the bear markets in 2000 or 2008. In last Friday's 'Big picture' Audio, I mentioned that the end of QE would produce something between a sharp correction to a cyclical bear trend of between 20 to 30 percent for the DJIA.

I can only guess, of course, because no one knows the future, but the Fed will presumablhy end QE when it sees evidence of a self-sustaining recovery. Hopefully, this will occur before there are signs of economic overheating, which would obviously be a problem. Nevertheless, stock markets are likely to be somewhat more expensive and perhaps more overextended than they are today.

Since everyone will be looking for the end of QE, an anticipatory rather than reactive approach may be preferable. Common sense would suggest that if markets first move higher, discretion would be the better part of valour when fashionable shares are clearly overextended relative to their 200-day MAs within overall uptrends. Alternatively, one could use trailing stops.

Among market signals, we know that the Fed would like to see unemployment move down to 6.5%, especially if that is achieved by hiring rather than an increase in the number of people who have given up in terms of looking for a job. The obvious point concerning 6.5% unemployment is that market risks can only be increasing as we get closer to that level from the April figure of 7.5%.

Also, US Treasury bonds may take fright before equities. Therefore it would be prudent to commence lightening or at least using trailing stops on evidence that bond yields are breaking upwards (weekly & daily) and that US unemployment is approaching 6.5%. Most stock markets are likely to be affected if Wall Street experiences a significant correction.

The third email above mentions typical criteria as the Fed is tightening on evidence of economic overheating. My guess is that the Fed will commence reducing QE before that happens as monetary policy is extremely accommodative at present. However, there are plenty of uncertainties between now and the end of QE, not least concerning who will be leading the Fed, and the level of stock markets and Treasury bonds as US unemployment declines towards 6.5%. Therefore this roadmap may need to be revised in line with future events.

Lastly, some of you may conclude that it is either too stressful or too risky, in terms of selling either too soon or too late in a corrective phase. In other words, you may opt to ride out the reining in of QE, on the basis that it may trigger no more than a medium-term setback. That could well be preferable to selling when the crowd is clearly frightened and stock markets are in downtrends, especially if you are mostly in shares with decent yields and good earnings prospects.