We had some mixed news yesterday, better US jobless claims and PMI manufacturing and worse China PMI manufacturing and US Philadelphia Fed survey. From what I can gather, the Fed is unlikely to start tapering in December. The economic recovery is still too fragile. Why would the Fed take a gamble and risk destroying the work it’s done so far? The Fed does not want to go back to square one. Plus bond yields are slowly rising, this is not the ideal environment to start tapering.
However, we could see fear returning ahead of the nonfarm payrolls report on 6 December. A strong report would increase the odds of an early tapering, so it makes sense to be cautious going into December. According to my analysis some sort a major pull back will occur in the next few weeks and prior to the release of the nonfarm payrolls.
In the near term it looks like the current rally will end either today or early next week. There are two possible scenarios on the chart above.
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