I don’t like the way things are shaping up for the market in terms of the jobs report and the market’s perception of the Fed. I don’t see any reason for the market to continue its blistering September in the wake of the poor September employment report. I wouldn’t be surprised to see a 4-5% correction in the near future, which would be partly profit taking and partly anxiety that the economy just isn’t improving fast enough.
What is QEII?
QE stands for “quantitative easing” which is another name for the Federal Reserve pumping oceans of cash into the financial system by buying bonds. This would be the second go around for the Fed as the first one didn’t exactly work as the Fed would have liked. However, market participants are reading the weak macroeconomic tea leaves as a sign that the fed will open the monetary spigots and drown the system with cash.
Positive Spin
Hedge fund manager David Tepper nicely summed up the current environment as a “win-win” for the bulls when he appeared on CNBC and said that any bad news will be seen as a green light for QEII and any good news will be received well because the economy is improving. He certainly hit the nail on the head as last week’s action played out exactly like this. Friday’s jobs report was pretty dismal, yet the market shrugged it off and rallied into the close. This is on top of the best September for the market since 1939.
Color Me Short-Term Bearish
I was quite bullish in an article I penned when the Dow was hovering around 10,000 saying that the negativity was too thick. We have come full circle and I would be taking profits. I’m not a snarling grizzly bear right now, but I would be hesitant to commit new money to the market here without a decent pullback first. History has shown that it is time to be fearful when others are greedy and the market only sees things through rose-colored glasses. I was watching the tape closely on Friday and could sense the dip-buyers were overly anxious to buy whenever there was any signs of weakness.
What To Do?
I wouldn’t short the market here for sure as the bulls could steamroll you under the guise of QEII, but as I said, I wouldn’t be a buyer here. Of course there are always individual stocks that will do well and soon I will be writing about several of my picks, but overall, it is a time when caution is surely warranted.
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