That didn’t take much. After a three-day rally, the media is back into “bullish” mode suggesting the bottom is likely in and by the end of this year, it’s all going to be just fine.
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Unfortunately, history suggests that after such a long unabated expansion risks are substantially higher than it has been previously. Furthermore, as I have repeated often in these missives, in an economy that is driven primarily based on consumption, and such consumption is already weak, it doesn’t take much to “flip the switch.”
Believe it or not, this was a point make by former bull Joseph LaVorgna, Chief Economist for Deutsche Bank, now turned…da..da..dum…“bear.” (Lord help us, hell hath frozen over.)
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This week’s reading list in a continuation of thoughts on the current state of the financial markets, economy and the Fed. Is the recent correction now over setting the stage for the bull to begin its next charge? Or, is the recent rally just a trap drawing unwitting investors into the next sell off? No one knows for sure, but what you decide next could have potentially serious ramifications.
1) Bearish Sentiment A Cocktail For Rallies by Doug Kass via Real Clear Markets
“As I noted both four weeks ago and again late last week, numerous precedents and positive technical divergences have led to our current sharp rally, including the fact that:
Despite the S&P 500 and Dow Jones Industrial Average recently hitting fresh lows, only about 50% as many New York Stock Exchange-listed companies hit new 52-week lows this month as did so in January.
The percentage of stocks trading above their 50- and 200-day moving averages was higher at the recent low than it was at the market’s January low.
The McClellan Oscillator and Summation Index recently held at higher oversold levels.
Conversely, the market’s recent leaders have gone on the defensive and become laggards. But as I’ve previously pointed out, leadership changes often accompany a weak overall market — so we have to stay alert.”
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