US fundamentals weak; QE3 not likely: Detrick

Ahead of the European Central Bank (ECB) meet, global markets tend to be in a wait and watch mode. The US market has also not rallied. Ryan Detrick, Chief Technical Strategist, Schaeffer's Investment believes irrespective of what the Federal Reserve or ECB says, fundamentals have weakened. On Friday the US jobs data is expected and it is likely to be a big market moving event, feels Detrick.

September is generally considered to be a bearish month in the US. However, looking at the present market condition, Detrick thinks it has been holding tough and it is not going to be as weak as it has been in the past.
Meanwhile, Detrick is not very hopeful of a third round of quantitative easing or QE3 from the Fed.
Also read: 10 most frequently asked questions about QE3 Here is the edited transcript of the interview on CNBC-TV18. Q: Markets essentially seem to be in a wait and watch mode in the US and maybe world over ahead of the ECB meeting. Generally in the past we have seen markets run up ahead of such a big meeting but it is not the case this time. Is it because of the data that has come in or is it that strong talk will no longer do and action is required?
A: It could be little bit of both when you talk about the US economic data, a tepid number came in, a little bit better than expected. But, overall the recent data that we have seen has definitely been suggesting the US economy is probably slowing down, the one caveat being strong housing data.
Now we are all kind of twisting and turning and waiting what is the Fed going to say, what is the ECB going to say. But, the bottomline is fundamentals have started to weaken. However, on the price action point of view, the S&P is up very good year-to-date here and still it is pretty strong. It is an interesting economy and we are going to figure out what is going to happen from the ECB and more specifically, here in the US on Friday when the jobs number is out. The big month of jobs comes out, so it is a big market moving event also. Q: What are the expectations from the ECB this time?
A: That is the ultimate question, isn't it? I think some of it is already kind of leaking out today, like some of the headlines that we have seen. But, from an ECB point of view, how it is going to affect the US markets that is kind of tough because again a lot of the European markets have definitely been lagging. But, US has been holding tough.
One thing we have been hearing in a lot about here in US is how September historically is the worst month and for last 100 years, it is the only negative month. But, we did a study and we found that September tends to be a follower. Whichever way the market is heading into September, we just have two straight up months. In September and historically in the last fifty years, that means the market is usually higher about half a percent or one half percent.
It is not that great but what we have seen is when it is going lower into September that is when it gets a big massive sell off. A lot of concern about September is here but, the fact that we are heading higher into it, we think it suggests maybe September might not be that bearish month. There are so many people who have started predicting. Q: We were earlier discussing how this is no ordinary September but the Federal Reserve meeting is also coming up next week, do you think the Fed is closely watching what the ECB is saying and maybe it could influence its policy decisions, is that likely to happen?
A: I definitely think probably behind closed doors they definitely are working together to a degree. But when you talk about the Fed, obviously there are lots of talk about QE3 and whether there will be a QE3 and like we said, the economic data is going slower but look at things like the credit market, the join bond market which is doing well, M&A activity continues to be pretty strong, share buybacks are strong so there are some positives and we just don’t think that we are going to have QE3.
Other people talk about housing. Housing is doing well and we think that is a good potential leader for the rest of the economy and maybe the economy can stand on its footing here for the rest of the year. This is specifically led by potentially higher and better housing data.