Once again, a multitude of technical indicators are signaling that markets might be at a crossroad. One of the definitions of a crossroad is “a crucial point especially where a decision must be made”.

I am positive that those who are watching have their fingers on the trigger. What I cannot tell is whether they will shoot up or down. One thing is for sure, time has come for the gunslingers to start shooting from their hips. Participants have been hoping for a new round of quantitative easing and the latest meeting from the Federal Reserve has shown that its board is inclined to go this route under specific scenarios. Yet, it is not clear markets are ready to revolt as in the past -all else kept equal- if they aren’t getting what they want.

Recently, we noted how traders, investors and money managers in general were moving funds into government bonds stalling the possibility of any stock market rally. Question is, will it happen again? Today, we are seeing a return of money flows into bonds but the decline of the main indexes on low volume may point to a different story. One thing to note is that the announcement by the Federal Reserve late Tuesday had its greatest impact on currencies and Treasurys, specially in gold which continues to rally. The apparent reading seems very simple: the Fed buying more bonds implies higher prices for Treasurys and lower yields -the 10-year Treasury note fell to 2.52 percent from 2.58 percent late Tuesday. Its yield is often a benchmark for interest rates on mortgages and other loans-, but more importantly it implied dollar devaluation. Devaluing the dollar will further the demand for other currencies such as gold.

Brian Wesbury from First Trust Advisors on the strength of the economy

So what about stocks? For now, most might be stuck in a range as a result of the wait-and-see attitude by managers who may prefer first to see the consequences of the Fed’s action on the economy.

From the most recent “Investment Manager Outlook” released on 9/22, “better than half of the managers surveyed (57%) believe the market is undervalued; the view represents a ten percentage point gain from that expressed in the June 2010 survey. This is the survey’s second highest “undervalued” rating ever (tying
for second place in “undervalued” ranking with the March 2009 survey), topped only by the 72% ranking in December of 2008″. So before selling your positions, you too should consider the effects of the coming economic reports as they may continue to show a healing economy.

Related Posts:

• Rubberbandish
• Stocks and bonds tug-of-war