With equity markets in fine form, having ended last week on an upbeat supported by positive economic news, they start this week still looking technically overbought so you sort of wonder; isn't anyone out there going to take their profits?

But profit-taking there has been - in the bond market. Yields at the long end of the US Treasury market have been rising and are now some 70 basis points above their August lows. Although the Fed does not intend to purchase much in the way of 30-year Treasuries this is not likely why the yields are rising. As Mr Bernanke puts it, the Fed is not out to create 'super-normal' inflation but to influence expectations in a manner consistent with its dual mandate. Now that the Fed will be purchasing about 75 percent of the

US budget deficit reflected in consensus forecasts for 2011, the bond market may be in the initial stages of buying into this (the 75 percent includes the monthly reinvestment of principal payments from its now passé credit easing program so not all of this is monetizing the deficit or involve printing money).

Debt monetization has been widely considered inflationary in the past. As the chart below shows, this view may now be gaining ground. The 10 to 30 year area of the yield curve is more upward sloping than at anytime over the past few decades suggesting a focus that is not just on inflation but more broadly on the prospect of reflation, which itself denotes the rise in aggregate demand - from both prices and quantities - and the rise in jobs that the Fed wishes to see.

David Fuller's view Markets will experience another correction, although not necessarily when most people expect it. We usually see at least one good correction per annum in a bull market. We witnessed a whopper this year, commencing in April and persisting into July for most stock markets, although the stronger and still leading indices saw their correction lows in late May.

The size of the mean reversion correction towards 200-day MAs from a prior overbought condition convinced many people, not least US-focussed commentators that we were still in a bear market, despite very bullish monetary conditions. However as the April highs have been cleared by more stock market indices, including on Wall Street, pragmatic bears have become born-again bulls, fuelling the persistent uptrends in recent months.

More overextensions to the upside, relative to the MA trend mean, bring us closer to the next correction. However, if the combination of abundant liquidity and trend momentum turns more underweight investors into renewed buyers, this may confine setbacks to small reactions and consolidations until stock markets enter a less favourable period in 2Q 2010.

We cannot know in advance when the next correction will occur. However we should see it in the price chart action for indices. It will commence with a combination of downward dynamics, bigger setbacks than we have seen over the last two months and breaks in the sequence of higher reaction lows in the many staircase upward trends.