“The Bear Market Is Dead, Long Live The Bull.”
You could almost hear the chants from the always bullish biased media this week as the markets ripped higher on “first day of the month” portfolio rebalancing and short-covering by fund managers.
The rally, as discussed this past weekend, was not unexpected:
“The good news is that the market was able to break above 1940, and the 50-dma, which now clears the way for a push to the 1970-1990 where the next levels of resistance will be found.
The bad news is that the markets are once again extremely overbought and still confined inside of an overall downtrend.”
(Chart updated through Thursday close)
Is this rally, which looks a whole lot like other rallies we have seen repeatedly in recent months, a true return to a bull market? Or is this another trap being set by the bears?
While it is too early to know for sure, with risks still mounted to the downside a little extra caution might not be a bad idea.
This week’s reading list takes a look at various views on the market, economy and what to expect next. What is interesting is that being overly bullish at the moment carries more portfolio risk (loss of capital if you wrong) than being bearish (missing out on early gains).
1) This Is A Suckers Rally by Michael Kahn via Barron’s
“Chip Anderson, president of StockCharts.com, wrote in a recent newsletter to users that current “emotional short-term reactions are really just part of a larger pattern.” According to his analysis, “The market has topped and is generally moving lower based on a rounding top pattern and the downward movement of the 40-week (200-day) moving average.“
But Also Read: Bears Have Their Backs Against The Wall by Avi Gilburt via MarketWatch
And Read: Top 10 Reasons Investors Should Sell Now by Doug Kass via Real Clear Markets
2) March Is Best Chance For Market Rally by Sue Chang via MarketWatch
“March may be the best chance yet for an S&P 500 rally if you ask Jeffrey Saut, chief investment strategist at Raymond James. History and an energy shift at the market’s gut level could be the triggers.
Saut believes the stock market bottomed in February. ‘The first week of March should see the market’s ‘internal energy’ rebuilt for another try on the upside,’ he said in a report.”
But Also Read: March Madness by Lance Roberts via RIA
3) Weak Economic Data Aligns With Market by Chris Ciovacco via Ciovacco Capital
“The shorter-term data tracked by our market model has seen noticeable improvement over the past two weeks. The longer-term picture, looking out weeks and months, continues to be concerning. Therefore, until more meaningful improvement starts to surface, our allocations will continue to have a defensive slant.”
Also Read: Two Reasons Stocks Are Headed Higher by Anthony Mirhaydari via Fiscal Times
But Don’t Miss: 2008 Revisited by Nouriel Roubini via Project Syndicate
4) Three Weeks Later, Gundlach Cashes Out Of Rally by Tyler Durden via Zero Hedge
“In an interview with Reuters Jennifer Ablan after DoubleLine Capital’s February flow figures were released (it was a $2.2 billion inflow) , Gundlach said the firm is now considering closing out some of its long positions in the stocks that they purchased three weeks ago.
Is the bond trader now just a closet equities daytrader? We wond’t know, but since the S&P 500 has jumped 8% in that period, why not takes some profits.
“That’s what we’re talking about,” Gundlach said about booking some gains after their short-term rally.
Gundlach still maintains that the U.S. stock market is in a bear market but had made those equity purchases because the conditions in the second week of February with “wickedly negative equity sentiment were such that risk/reward favored a potential tradable rally and also made such a low allocation less advisable.”
The time to buy the dip, however, has passed: “I am bearish. There are just wiggles and jiggles in the markets.“
Also Read: The Best Offense Is A Good Defense by Adam Koos via MarketWatch
CHART OF THE DAY: McCellan Oscillator Over 90 by Northman Trader
5) Sunshine, Lollipops And… by Bill Gross via Janus Capital
“If negative interest rates fail to generate acceptable nominal growth, then the Milton Friedman/Ben Bernanke concept of helicopter money may be employed. How that could equitably be distributed nationally or worldwide I have no idea, but the opinion columns are mentioning it more and more often, and on Twitter, the “Likes” are increasing in numbers. Can any/all of these policy alternatives save the “system”? We shall find out, but current evidence of the past 7 years’ experience would support only a D+ report card grade. Barely passing. As an investor though – and as a citizen in this election year – you should be aware that our finance based economic system which like the Sun has provided life and productive growth for a long, long time – is running out of fuel and that its remaining time span is something less than 5 billion years.
Investment implications? Do not reach for the tantalizing apple of high yield or the low price/ book ratio of bank stocks. Those prices are where they are because of low/negative interest rates. And too, do not reach for the seemingly momentum driven higher prices of Bunds and Treasuries that negative yields have produced. A 30 year Treasury at 2.5% can wipe out your annual income in one day with a 10 basis point increase. And no, you can’t go to a bank and demand your cash for a fear of being labeled a terrorist. Seems like you’re cornered, doesn’t it?“
Also Read: This Is Nuts, When’s The Crash by David Keohane via FT Alphaville
OTHER GOOD READS
- Do You Have Enough To Retire by Paul Merriman via Retirement Mentors
- Dividends Say Economic Contraction Deepens by IronMan via Political Calculations
- Don’t Ignore The “Bezzle” by Satyajit Das via FT
- Who’s Afraid Of Negative Rates? by Danid Ranson via Real Clear Markets
- Stopping America’s Debt Explosion by Martin Feldstein via Project Syndicate
- Here’s The Problem With Index ETF’s by Michael Farr via CNBC
- Things To Avoid When Investing via ValueWalk
- Fear & Loathing On The Market Trail by Joe Calhoun via Alhambra Partners
- The Courage To Fail by Jesse Felder via The Felder Report
- Large Cap Stocks At Pivotal Level via Dana Lyons via Tumblr
- A World Deep In Debt by David Merkel via Aleph Blog
- Red Swans & Other Reasons To Be Afraid by David Stockman via ContraCorner
“Bull markets die with a whimper, not a bang.” – Anonymous
Questions, comments, suggestions – please email me.
Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report”. Follow Lance on Facebook, Twitter, and Linked-In