As is detailed in the chart above the S&P 500 has backed off from a region that, should it have broken, would have dented the bear structure present since October 2007. Given the movement in other markets and in particular the currency markets, I am of the belief that we are now set to see a major correction lower, if not an outright return to the larger bear market. It is also my belief that this bear market will not be over until we have seen a sell off in the Government bond markets of the G7. There is a much greater probability then is currently priced into the market that we break the lows of March 2009. China is a massive ticking time bomb as I have detailed before on this blog. The aussie dollar which is priced for perfection to my mind even looks like a sell against the EUR. Now that is saying something. Australia like China is a ticking time bomb. All risk positions should now be treated with extreme caution as there is a high probability of sharp losses on these positions.
Anyone who thinks we started a new bull market in March 2009 should be cautious, as long term bear markets rarely bottom out at such rich p/e ratios. We should see single digit p/e ratios when it is all over. This is not a regular post WWII downturn. It is of course feasible that we get such a p/e ratio without breaking the low of last March.
As for emerging markets, forget it. That mania is set to die a very nasty death. Decoupling! When will people learn. There is no such thing as decoupling.
