Next 4-5 weeks will be very interesting. First of all, the plunge of the CMI index from July to August suggests the economic activities will crash down in next 5 weeks.
Second, the bond market looks topped already and the bond prices, including all treasure bonds, Muni bonds and junk bonds, plunged even though Bernanke announced the QE2 last Wednesday to print additional 600 billions dollars. Fed expects the bond market will respond to its QE2 with lower yields, so that it lowers borrowing costs and helps economy. The fact that the bond market moved in the opposite direction the Fed anticipates is not bald well.
Third, the debt crisis in Europe is heating up. Now the European Union leaders are debating on the bailout of Ireland and a potential another bailout of Greece. The members of the EU expects the Germany will step up to provide at least most of the funds for the bailouts due to its huge amount of trade surplus to the rest of Europe. But Germans keep on resisting the bailout ideas and hope the nations to default their debts and let the bond holders to take the lost. That significantly increases the bond yields for these countries and make the crisis deeper. We will see how the debt problem in Europe unfolds in the next 4 weeks.
Considering all three negative impacts on the U.S. market, I am not optimism to the stock market in the next 4-5 weeks, as I have warned at the early October in the post titled “Tsunami Warnings on Market Crash of 2010“. I will keep an eye on what will happen in the coming weeks.