I previously said I would watch markets closely after the Fed announcement to determine the validity of my bear market assumption. Here are my two findings until now:
- Skepticism regarding the economy and especially the QE is very high. I have not seen any opinion out there that this move would help the economy, which is very surprising after a sustained rally.. From a contrarian point of view this is just fuel for the continuation of the upmove.
- The markets are not showing weakness. Europe is trading higher on record volumes, led by banks, the dollar is lower, oil is rallying and the ES broke 1200.
I will not draw any conclusions yet from these observations but implications are evident.
Market strength makes me reconsider my expectation of a sharp correction that would end by Friday. I think there are still stubborn bears that are stuck short. As soon as they bail out, which will probably happen today, the market can start a correction. I expect the put/call ratio to indicate this fact by a spike to about 0.8:
This would correspond to a top associated with the employment report tomorrow, an usual occurrence.
The correction will provide another round of information. Lack of weakness would lead me to believe the bear is dead.
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