Rosenberg: Fade The Volumeless Rally As "The Market Is Completely Unprepared For 500K Claims And Sub 50 ISM"

Tyler Durden's picture

Rosie's market commentary from today is quite colorful, taking on both Barton Biggs (why bother) and Richard Russell as inflection point contrarians (we fully expect Barton Biggs who has now generated enough commissions for his broker to kill his entire P&L for the decade, to go bearish in about two weeks in keeping with his latest standing wave oscillation from one extreme to another). Rosie discusses a topic near and dear, namely that bonds continue to not buy the equity rally, and that the market is really not only stupid and inefficient, but wrong and overshooting most of the time. The only question is for how long can it remain wrong. And courtesy of the Fed, the answer is long, long, long. Not surprisingly David ridicules the constant lack of volume to the upside, and concludes that the rally should be faded, and that "this market is completely unprepared for 500k claims and sub-50 ISM." Obviously, he expects both to occur shortly (and just in time for Shiller to say he believe the chance of a double dip is more than 50%).


We’re 142 trading days into the year – 52 days (37%) have seen 1% or greater moves. And the S&P 500 is now flat as a beaver’s tail on the year. I call this the meat-grinder market. Again, a huge rally into yesterday’s close – and now the S&P 500 is sitting right at the 200-day moving average. This is starting to get interesting. Again, the lack of ratification from Mr. Bond as the 10-year note yield came back and closed the day a smidgen below 3%.

Today is a critical day. The interim peaks since the April 23rd peak have been progressively lower but a three-point rally in the S&P 500 today would break that pattern:

April 23rd: 1217.3

May 12th: 1171.7

June 18th: 1117.5

July 26th: 1115.0


We should add that we are at a new post-April high in the Dow and the NYSE (the latter is not yet at the 200-day m.a.). We're not there yet on the S&P 500 or the Nasdaq (13 points off) but we are getting close. While everyone is fixated on the 200-day moving average, we add a note of caution: the S&P 500 breached that technical threshold for a good week back in April and those who dipped their toes into the risk pool got burned pretty badly (at least for the next two months).

Now Bernanke may not be the world's best forecaster – I don't know who is. But he has the deepest rolodex, more than any CEO. And when he deliberately says "unusually uncertain" to describe the economic outlook, I find it irrational to ascribe anything fundamental to this rally. I know where you are coming from but the market gets it wrong as often as it gets it right – it was wrong to forecast a recession in the fall of 1987, again in the summer of 1998 and again in the winter of 2003. It was wrong to forecast sustained growth in the summer of 2000, a recovery in the winter of 2002, an avoidance of recession in the fall of 2007 and the end of the downturn in the spring of 2008. It may be a discounting mechanism, but the stock market has a spotty record – let's remind ourselves of that.

There is no denying that the technical picture has improved. In particular, 1040 has proven to have been major support for the S&P 500. The new high list continues to grow rapidly while the new low list is fading fast. The 200-day moving average, which looked to be faltering two months ago, is back to an up-slope for all the major averages, including the transports and small caps.

At the same time, over the past two months, yield-sensitive stocks have outperformed – which makes sense in an environment of a 3% 10-year note yield and a sub-2% yield on the 5-year note. So from what I can tell, from a sheer stockpicking standpoint, is that it probably makes sense to focus longs on companies whose stock looks well supported technically and has a decent yield (3%-plus).

I think claims above 500k and ISM below 50 will be surprises for consumer cyclicals and industrials in the next few months.

To repeat, the technical picture has improved. The data have really been unimpressive even if not horrendous. And I think we have the potential for a lot of disappointments in earnings to come as the plays on "domestic demand" are in the offing.

Some things to note. First, at the lows, perma bulls like Barton Biggs turned bearish. Now at the highs, perma bears like Richard Russell appears to have turned bullish. To be sure, the market downdraft in June was never confirmed by the transports, but did they confirm the move in the industrials to recovery highs in April.

After closing at or near the daily highs for three days in a row, you know something funky is happening in that last 30 minutes of trade. Volume is still wanting and is necessary to validate the new uptrend. The market is also hugely overbought right now. Strangely, while the breakout in industrial metal prices of late would seem to offer some ratification, the fact that the 10-year T-note refuses to break above 3% suggests that there are still some investors placing bets on a deep slowdown ahead.

It's getting interesting but I'm wondering about the efficacy of maintaining a bullish stance now after a 10% rally that is possibly about to meet resistance and a rally that was devoid of volume, which is any equity market rally's vital backstop, and devoid of validation from the bond market. If this test of the 200-day m.a. fails, and I'd give it a few days since that would be prudent, I would be tempted to get more defensive – this market is completely unprepared for 500k claims and sub-50 ISM.


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Oh regional Indian's picture

But fundamentals do not matter anymore. Charts lie. All the numbers quoted are .gov or mainstream. Plus, there is a significant and massive and pervasive demand contraction ongoing.

Stay out unless you are a machine. 


Mojo's picture

But there are good stocks out there. Take Intel. It has a PE of 13. Lots of cash. Pays a 3% dividend and has a blow out quarter.

If the market wants to go up, go with it. If some bad macro news comes out, sell the good ones and short.

Oh regional Indian's picture

Mojo, I don't believe those numbers anymore. What percentage of Intel's sales base is consumer products? Where is that market headed?

It's a price Vs. Value thing.

If you're in, you're gambling, more than before. But that' sjust my view.

Accounting standards? Can you say oxymoron?

Plus, who is going to time the algos?


Mojo's picture

Intel is making money in the corporate and over sea market. And you are getting a 3% dividend. Look at it as a bond which is returning a 3% yield. Would you rather hold this bond than 10 year treasury? It's just an example. There are many stocks like that out there. There are bright spots out there.

On top of that, if you think it's really that bad, then prepare to short it or what ever your target is. You can make money either up or down.


Bam_Man's picture

Look at it as a bond which is returning a 3% yield.

Looking at a common stock dividend as though it were a bond coupon is sheer foolishness. The kind that will eventually land you in the poorhouse.

Intel is a particularly BAD example because of the capital-intensive nature of their business. In a cyclical downturn that dividend will disappear faster than you can say "I've lost it all".

lewy14's picture

Some perspective - Intel is no longer a growth stock - it's been very cyclical since the dot com crash (a predictable ride between 13 and 23 or so).

Intel knows damned well that the only reason people hold their stock is for the dividend. They must return money to shareholders, because they cannot promise the growth and capital appreciation which they delivered in the 90s.

Semiconductor manufacture is enormously capital intensive - however Intel's products are unusually profitable, both in gross margin and consistency, and have been for the last twenty years.

Most of their customers are foreign. Increasingly, so is their manufacturing and R&D. Sensitivity to the US consumer is not high, and will decline further.

Although Intel needs to invest heavily in every generation of manufacturing process tech, it has a very, very large pile of "chips" on the table.

Unlike GE, it has no heavily leveraged finance arm, and has billions in cash.

My bottom line is that it seems like a fine dividend stock as dividend stocks go.

Dr. No's picture

In keeping with this article, It appears INTC is on the right shoulder of a head-and-shoulders topping pattern.

Spitzer's picture

I would say that the dumbest market of them all at this point is bonds. Like Marc Faber said, what is the quality of US bonds when the economy is not capable of paying its taxes ?


nonclaim's picture

The key is to hold until close to maturity and then roll... be happy with the interest paid and never try to get your investment money back or the haircut will be a clean shave. In this regard it may be "better" to get a riskier asset.

Spitzer's picture

Keep holding and rolling, all the while you are missing out on good gold prices.

Cheeky Bastard's picture

You mean gold which lost 10% in 1 month [or so] ?

Yeah fan-fucking-tastic trade that is. Say do you work for Falcone or Paulson ?

There will be no apocalypse and gold is nothing but an asset which underperforms during deflation.

But yeah you go long. Take a second mortgage, another HELOC and go long gold  ON MARGIN.

Spitzer's picture

Don't be such a day trader. Buy the dips in a real bull market.

Gold is going down today and tomorrow because Andrew Mcguire said so.

Also, anyone that doesn't know that July is seasonally the worst month for gold doesn't do their research. Typical fucking moron sheeple investors....The month that Paulson should be gaining cleints (to get in on good gold share prices) is the month that he is losing the most clients.

Kinross gold, one of Paulsons biggest gold holding hit a 52 week low. TIME TO FUCKING BUY.

MachoMan's picture

Agreed, but the alternative is certain annihilation of the world wide market (coming anyway, but the question is how do we delay the inevitable).  Effectively, EVERYONE has a vested interest in ensuring the United States is a going concern.  The rush to an alternative reserve fiat currency is not going to happen.  If other countries attempt to put together any basket of commodities backing a new proposed reserve currency, we will jump back on the gold standard with our relatively superior position (despite our holdings likely being loaned out or largely fake).

There HAS to be consistent/constant fear in order to keep moving new debt.  The reflation trade has been declared dead.  We have but one, last flight to quality (and this is it).

You also have the issue of dwindling supply of viable alternatives for entities required to purchase AAA/statutorily mandated instruments.  Banks, et al, are buying treasuries like mad...  regardless of whether they get to dip their snouts in the discount trough.  Where do you think the payoff of credit is going?  We have a situation where these institutions are not required to report losses, but at the same time are increasing cash deposits and repayment of loans as America fortifies...  the money has to go somewhere and many of them are very limited in what investments they may purchase.'s picture

Richard Russell--sell everything in May--and now bullish?

LoneStarHog's picture

Russell also sent out an Emergency Bulletin in May (I believe) telling people to GET OUT of the markets.  He said, "You will not recognize America by the end of 2010".

Who the hell knows anything anymore...

FunkyMonkeyBoy's picture

Gerald Celente said the same thing.

10044's picture

is it the end of 2010 yet??

Cursive's picture

Wasn't the quote from Russell that we wouldn't be able to recognize this country (America) by the end of this year?

ETA:  Thanks LoneStarHog.  Didn't see your post before I posted.  :-)

Amos Moses's picture

Russell may have been a little late on that call because I don't believe I recognize America anymore.

freshman's picture

Age does take a toll on people. He can say whatever he wants at his age. We just don't recognize him anymore.

Kreditanstalt's picture

It doesn't need to be prepared for ANY data...the only stat that counts is that dividend yield hanging just in front the noses of all those (desperate and myopic) major market participants.

As he says, it's all about YIELD.  Who cares if the outfit is bankrupt in all but name?  Who cares about mass firings, layoffs and company downsizing in the name of 'profit' if the dividend isn't cut?  Valuations mean diddly-squat now.

But just wait till some dividends are cut...!  Then watch the plunge...

traderjoe's picture

The only stat that matters is the one that they think they can pitch to their clients in order to preserve/plump their AUM. 

desihedge's picture

A high test bar today will make bulls cautious, very cautious and profit taking (if anyone actually did make any profits - other than Skynet), should push this market down and on its path to its real value. Watch the action at 200MA. Some other key risk currencies are similar level as well (Cable and Aussie in particular).



RodeoBull's picture

Rosenberg is a joke. This market goes way higher.

You mathletes need to stop looking at useless data. It's logic. We're in a de-levered environment. There is nothing to fear.

firstdivision's picture

Step right up, get your TZA, FAZ while it is cheap. 

Kreditanstalt's picture

Thanks for the reminder...I DID!  FAZ @ $13.42.  Because this rally has faded and I think will continue to fade today till closing.

lynnybee's picture

....just sitting here waiting for the world to collapse.   the other day I was muttering the words, "Robert Rubin, Larry Summers, Geitner, "  under my breath while I was cooking.   my husband, who is supposed to be very intelligent, said to me,  "who is Geitner ? "  .......... this is what I'm up against.   .... i'm running around stockpiling,  talking about the end of life as we know it & THEY DON'T CARE !   MY OWN FAMILY IS CLUELESS & IGNORANT ! .......... I can only imagine the rest of this country. .........

lynnybee's picture don't want me, i'm too old, 60.    why do you think i put a photo up of my bird instead of me !!

RockyRacoon's picture

I'll trade ya.  Your hubby can have my wife instead.  She does not know who Geithner is -- and doesn't cook.  I'm 62 so it'll be a perfect match!

Miss Expectations's picture

Rocky, I had you pegged as a 20 something.  See, this just proves my point...Once we reach 24 or so we just stay there.  The body ages, but we don't.

seventree's picture

Is that 62 in racoon years?

RockyRacoon's picture

That would be one petrified raccoon!

MsCreant's picture


I hope you understand the value of your posts. Look at the discussion that resulted from it. There is more to this than charts and graphs.

Cognitive Dissonance's picture

I've been haunting ZH for nearly a year now and this appear to be pretty common based upon the comments left. One spouse pretty aware, the other side of the house in darkness.

FEDbuster's picture

Thankfully, my wife and kids are on board with enthusiasm.   We are prepping like Mormons on meth.

Village Idiot's picture


Focus on those closest to you and consider it one more way you quietly protect and care for them.  There are probably other ways you protect and care that don't get recognized.  All in a days work. :-)

OpenEyes's picture

Similar situation in my house.  My wife just doesn't want to know, doesn't want to hear or understand, really just doesn't care that much.  She understood what I was telling her back in 2007/2008 about the housing market bubble and banks leveraging themselves into insolvency.  She also understood what I shared with her about peak oil.  She even understood the ramifications of quantitative easing and what that means about the future purchasing power of dollars.  But, we live in a culture that seems to be timed for weekly television episodes.  We can maintain our attention and follow the plot from one week to another but if there isn't enough action and drama in the storyline we quickly lose focus. It becomes yesterday's news not because anything changed but precisely because there has been no (apparent) change. 

MilleniumJane's picture

I completely understand.  It has been an uphill battle to get my own family to understand that our republic is morphing into a corporate fascist state.  My husband is still in denial, wanting to go on vacation, build an add-on to our little abode and buying things we will not need to survive.  The others think I'm a little loco and are wondering what I'm worried about because after all, the government is on top of things, right?  It is like reasoning with a brick wall.  I have decided to lay off and push for stockpiling for natural emergencies like earthquakes (something the government "approves" of) and let the chips fall where they may.

traderjoe's picture

I roughly had the same experience. My wife was worried "about the pictures" she would have to leave behind if we bugged out. 

ElvisDog's picture

I'm in the same situation. My wife not only doesn't know what is going on, she assumes (like most people) that everything will work out and return to the same, old growth and "prosperity". She thinks I'm a bit of a loon for reading blogs like ZH. She is a tenured elementary school teacher who wants to leave her job because she wants a new challenge. I keep trying to find a way to tell her "Keep your teaching job. There are no other jobs out there".

ElvisDog's picture

I should add she gets the entirety of her news from the MSM, so in some way I can't blame her for thinking everything will work out.

SheepDog-One's picture

The markets will reverse their meaningless wandering higher and slam down again when it best suits the interests of those ramping it UP right now...and you dont know when or why that will be, so everyone just stop acting like you do know. When the banksters get in trouble, when Wash DC needs a panic, when Bernanke wants to print another few trillion Benniebucks, THEN you see new lows. Until then, Churn on, HTF machines, churn on!

Bankster T Cubed's picture

exactly.  these "markets" do whatever reaps the banksters the mostest.

Bankster T Cubed's picture

how long until Rosie, like me, goes "full bullshit"?

Chemba's picture

"It's getting interesting but I'm wondering about the efficacy of maintaining a bullish stance now after a 10% rally that is possibly about to meet resistance and a rally that was devoid of volume"

Give me a break. Rosenberg may be a good economist, but he's not a good investor.  He's been bearish since SPX 666.  At that point his call was SPX 500.  And his "bullish" call on gold is also BS; he did not start talking up gold until it reached $1100