I understand how most investors want to feel like we have bottomed and while a plateau feels safe and flat, it is NOT a bottom. As much as the selling pressure has obviously declined, it looks like a temporary situation. Before the Fed’s discount rate intervention, I wrote a post called Are We There Yet? and suggested that I was looking at four items before I could feel that we had stabilized. While some of these have stopped getting worse, they have not gotten better.

The first was Currencies and it had to do primarily with the Yen Carry Trade. While the Yen has pulled back off the highs it reached during the panic on August 16th, I am still not seeing the exchange rate movements that would imply that the Carry Trade has stopped being unwound as a whole. The BOJ decision last week to hold rates steady was helpful to calm the situation but it is a response to what happened in my opinion and not necessarily something that will prevent further appreciation of the Yen if global problems return. It’s a bit disconcerting to hear investors and commentators suggest that it is being put back on and I feel they have gotten ahead of themselves. During the decline I suggested that the Yen Carry Trade would be unwound slowly and in layers. The most liquid assets supported by the carry were likely sold and the Yen appreciation reflected that. I don’t doubt that some short term trading opportunist have put some of those trades back on after the central bank intervention. However, if we have another problem those recent trades will vaporize and the next round will likely cause a greater spike in the Yen. I am watching the Yen/Kiwi, Yen/Euro as well as Yen/USD and while they have stopped making moves that really concern me, they are not yet back into ranges that tell me we have stabilized.

The second factor I was evaluating was The HEDGEfolios Timing Indicator. Since April 30th, my proprietary market reading was bearish and over the past few weeks, it has actually been moving towards a bullish crossover. I’ve come to trust this measurement over the past few years - especially at times when it conflicts with prevailing market sentiment. Right now it is leveling off, but I suspect it’s a plateau and not a bottom.

Thirdly, I was watching for demand along the Treasury yield curve. We saw a massive flight-to-quality asset allocation and while I usually only discuss the 10-year, that is not sufficient right now. So instead, I’ve been focusing on the shorter end of the curve as evidenced by the 90-day T-Bill, the TED Spread and the 2-Year. These measurements have shown a lot of improvement over the past week, but we are not back to even. Once again, investors need to discriminate between something that feels less bad and something that is normal.

Lastly, I was evaluating the move in Emerging Market Equities. While most of these markets have rebounded about 12% off the recent lows, I am not convinced the move is sustainable. The volume accompanying the rally has been very light and while the selling has declined, I suspect that it’s too early for most investors to put new money to work in this area.

Overall, things are less bad now than they were before the Central Banks stepped in. The relief that investors are feeling from a decline in selling pressure has not resulted in meaningful capital being reallocated to riskier assets. I am not looking for new record highs before becoming entirely bullish, but I am being objective enough to at least wait for us to get our heads above water.