State of the Market Report

I'm still listening to the market. But it's time to come to some conclusions. As usual, I'm trying to watch market from three points of view: fundamentals, technicals and sentiment.

Fundamentals


Hard to judge. Some companies report great earnings. Some, not so great. Manufacturing fell in US in September, this is minus. Fed is probably determined to go with QE2: big plus. I'm going to judge fundamentals as slightly bullish, because "you should never fight the Fed".

Technicals


Screaming. Major indices bounced off 13-day moving average yesterday, for the second time during this rally. 50-day for major indices is just about to cross above 200-day MA, that's Golden Cross. The only technical indicator which is bearish is relative strength: markets are grossly overbought. But they are overbought for more than a month already. Besides, overbought condition (as well as the oversold one) can be worked out with time. Technicals are very bullish.

Sentiment


Despite very bullish calls made by such insignificant people as Warren Buffet, Legg Mason's Bill Miller, Jim Cramer etc., most calls are bearish to hysterics. However, there was some turn to bullish sentiment on CNBC lately. I'd judge sentiment as mostly bearish, but changing. Being contrarian indicator, it's bullish but changing to less bullish and maybe bearish.

Of course, there is something fishy in this rally. Still a silly reverse correlation between dollar and all (or almost all) asset classes. Still grossly overpriced commodities. But as Buffet, Miller and Cramer tell us, stocks are extremely cheap compared to bonds. Something gotta give. Another development: looks like fixed income is topping now. Not sure about Treasuries, but looks like corporate bonds are at the top.

Rally is great. You make money without moving a finger. The question: when and how it ends?