More losses ahead before the big bazooka, says analyst

By Sara Carbonell

Date: Tuesday 26 Jun 2012

Looking at the relatively modest losses, many analysts believe that the markets have already discounted Moody's latest round of rating cuts for Spanish banks and Cyprus's petition for European rescue funds - Central Markets senior broker Joe Neighbour is one of those analysts.

"I personally expect that we'll see a little bit of a pause in the selling but I don't think it will last. There's still too much uncertainty out there," Neighbour said. "All the European markets are looking a little bit oversold, but we would still be looking to sell into any strength."

Along the same lines, Guy Lerner of The Technical Take points out that he does not expect any rebound to be sustained for long because sentiment has not been sufficiently bearish at the market bottom. Lerner explains that large rallies tend to start with real extremes in investor sentiment, something that has not happened even though the S&P 500 is almost 10% below the April-high.

Lerner further adds that investors have been prepared to act on announcements that remotely resemble quantitative easing from the Federal Reserve. He notes how the extension of Operation Twist was followed by more selling and that the only thing that activates the market is the printing of new money.

The Fed did not convince investors with this extension of Operation Twist, says Lerner, they need something greater.

"The markets were saying, ‘Is that all you got?’ Maybe we should take Ben Bernanke at his word. They are monitoring events, and they are ready and willing to use the big bazooka. But not now. Yes, the economy is weakening, but with prices still above its 200-day moving average, 'things' can't be too dire. Simply put, I think it will take lower prices, which will bring out the bears, and of course, everyone will be clamouring that the Fed has to do something, and they likely will. That is what they do," says Lerner.

"I have been saying for months now that the sentiment data has been consistent with a market op, and the recent weak 'bullish' signal is consistent this observation. There is nothing new to suggest that there won't be better buying opportunities ahead."

SC

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