Al_Dente wrote:I’m worried that the massive-panic buying at Friday’s open, which failed immediately, is telling us something important… I’m just not sure what it is saying….
Well, what are Doctors Copper and Lumber saying?
Dr. L is saying I'm near an 18 month low. Dr. C is saying I'm not doing much better.
Bernie Schaeffer, veteran pundit, always liked to watch $FVX (5yr Treasury yield) as a favorite indicator of broad economic strength or weakness. He felt it was less tracked, less skewed by short-term speculation. $FVX is currently AT an 18 month low.
So upcoming econo-weakness is already priced in. Thus, the Fed cannot "take away the punchbowl". But they also don't have much punch to put out. The market is always balancing the risk of lower profits in a weak economy with the enhanced P/E of lower interest rates. Signs of distribution (which that dumping on Friday may have been) are what we need to watch for, as clues that the market expects recession rather than soft landing.
Also, signs of increased quantative easing by the Fed should be watched for. They seemingly have little appetite to further swell their engorged balance sheet.