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Citi Fears The Sustainability Of The US Equity Market Rally

Tyler Durden's picture


"We are concerned about the sustainability of the Equity market rally at this stage," warns Citi's FX Technicals' Tom Fitzpatrick. Between price action parallels to those seens around the peaks in 2000, the fragility of confidence, the Fed taking its "foot off the gas" and bonds now yielding considerably more than stocks, Citi adds, though we are yet to see bearish breaks, they doubt higher highs wil be sustained for long.



The price action on the S&P 500 reminds us of that seen around the highs in 2000

Starting on the left of the chart, there was a serious correction down in the S&P 500 of 22%. This was at the time of the Asia and Russia Crises

That looks very similar to the 22% correction down seen in 2011

Both of these corrections of 22% each were reversed by a bullish monthly reversal (not shown on this chart as it is a weekly chart)

From that 1998 low, the S&P 500 rallied 68% to the high in 2000. At that high the market was 14% above the 55 week moving average while we also had a large gap between the 55 week and 200 week

This time the market has rallied 72% from the 2011 high and currently the 55 week moving average stands at 1655. 14% above that level would put the S&P 500 at 1,887 which is marginally above where we trade today

We also see a large gap between the 55 and 200 week moving average similar to that seen in 2000.

So overall, from a price action perspective, the trend is mature and is as stretched as it was in 2000.

Furthermore, as previously highlighted,

  • Confidence appears fragile and likely to move lower (Confidence is not dependent on the stock market but quite often the other way round)
  • The Fed is taking the “foot off the gas” which has been the primary driver of this stock market rally
  • Bonds yield more than equities now (The S&P 500 dividend yield is at 1.9% while the 10 year yield is currently 2.9%)

So overall, while we are yet to see bearish breaks, we are concerned here with the S&P 500 from a medium term perspective. It may well be possible for a higher high still (in 2000, the market made a marginal new high in March but then fell back), though we doubt such a development will be sustained for long

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Fri, 01/17/2014 - 22:15 | 4343023 flacon
flacon's picture

"Pull it!"

Fri, 01/17/2014 - 22:18 | 4343031 NoDebt
NoDebt's picture

I thought this was all supposed to start crashing down on Jan 14th.

Fri, 01/17/2014 - 22:20 | 4343035 OC Sure
OC Sure's picture

With so many analysts afraid of the top, how can it be the top? Suck them all in...woooooshhhhh!!!


Sat, 01/18/2014 - 04:25 | 4343510 Carpenter1
Carpenter1's picture

So many?? Are you freaking stupid? ZH is by no means an accurate representation of overall market sentiment.


Go watch CNN money for a week and see how many analysts are callng this a top. Youll hear crap like the S and P is going to 2500, even 3000.

Sat, 01/18/2014 - 11:30 | 4343844 OC Sure
OC Sure's picture

I see what you mean, Carp.

I'm just looking for the blow-off spike that is accompanied by the mainstream news event that tells buyers why this is their all-in moment. Or, a swift and sudden break of the uptrend without immediate headline news. The former indicating a manic peak, the latter that the underlying systemic risks will end the run before any blowoff.

Fri, 01/17/2014 - 22:23 | 4343039 Dr. Engali
Dr. Engali's picture

While I would agree with the technicals in normal times, we aren't in normal times. Everybody is turning bearish, that tells me to keep BTFD.

Fri, 01/17/2014 - 22:35 | 4343064 OC Sure
OC Sure's picture

We note that everybody is turning bearish, but what about the wide disparity between bullish consensus versus bearish consensus of investment advisors as depicted many times here in the last few weeks? I'm still looking for that moment of genuine public euphoria and just don't see it yet;  something like the AOL/TWX merger in 2000. But then again, a sign of public exasperation would be typical.  Maybe the impetus won't be so typical like 2008 where there is turbulence in the underlying system. What's a trader to do but observe?

As long as the trend is up, then the trend is not down.

Sat, 01/18/2014 - 00:36 | 4343310 disabledvet
Sat, 01/18/2014 - 02:32 | 4343427 obejoyful
obejoyful's picture

That is what a sheep would say.  everyone is going off a cliff i must go as well.


Sat, 01/18/2014 - 10:28 | 4343761 Dr. Engali
Dr. Engali's picture

I've been making a killing playing with disposable money, taking profits, and plowing them into tangibles. If I lose what I have in the market when this thing vaporizes, I really don't give a fuck. It's been house money for a long time, and my stacks will explode in buying power. Go ahead and miss out on the free money. I will take advantage of it. My PMs stacks look pretty good thanks to the Bernank.

Sat, 01/18/2014 - 04:28 | 4343513 Carpenter1
Carpenter1's picture

Again, "everybody" is not turning bearish, investors have never been so bullish. ZH does not reflect market sentiment, in case you havent noticed, ZH has a distinctly bearish tone.

Sat, 01/18/2014 - 11:39 | 4343848 Dr. Engali
Dr. Engali's picture

Just because Zero Hedge posts an article it does not necessarily mean that It reflects The Hedge's sentiment. We all know that the bastardized markets are overvalued and should be much lower, but the reality is that the "markets" are a policy tool. Therefore until that fact changes all other analysis is meaningless.

For the record my target in the S&P has always been 450,but my belief is we will see thousands vaporized off the Dow in nano-second. Precisely because the fed has chased away all the shorts and the volume is anemic.

Fri, 01/17/2014 - 22:33 | 4343061 El Vaquero
El Vaquero's picture

At some point, the Fed is going to have to increase QE to keep shit going up.  Otherwise, something unexpected will happen and those margin calls are going to start rolling in, and it'll be faster than the Fed can react.  So, is there going to be a crash before the Fed prints more, or is the Fed going to print more before that happens?  The latter will be real fun in the long run, as it'll keep a lot of stocks levitated until the companies have to file for bankruptcy because there aren't enough consumers who can afford to buy their shit. 

Sat, 01/18/2014 - 10:32 | 4343773 ms8172
ms8172's picture

You never know... the market might crash because the FED announces they have to print more.  You just never know!!

Fri, 01/17/2014 - 23:05 | 4343116 Tooshort109
Tooshort109's picture

The extremely over bought years from '96-'00 felt like it was endless. Every time we sold every break we had it jammed up our #ss hard. Who was still solvent in March '00 AND smart enough (crazy enough) to be short....and stay short? The more "overvalued" anything is, the more obvious the short is and the pain that follows. So, I'm short and have been for too long now. This b#tch and I will wrestle until one of us is dead.....BTW, Suntory buying BEAM for 3.5X sales, 35X earnings and using a "Bridge Loan" may not be TW/AOL but it too won't end well.....

Fri, 01/17/2014 - 23:28 | 4343161 OC Sure
OC Sure's picture

The difference is that the general public does not know what a Bridge Loan is, or what Suntory and BEAM are, but they did know what AOL and TWX were because Newsweek, Us News and World Report, and Time magazine told them; all at the very top of the market, at the same week. It is more difficult to guage public sentiment these days since the media is so much more diffused. But at a minimum, we would see a major headline on the USA Today newspaper and splattered all over the usual outlets. Until then, seller beware...

Fri, 01/17/2014 - 23:05 | 4343119 Quaderratic Probing
Quaderratic Probing's picture

To make money shorting it they have to sell to some one first. Unless they can create an artificial financial buyer to sell to then Naked short the whole market leaving everyone to sell for real in panic. No they would not be that evil...........

Fri, 01/17/2014 - 23:17 | 4343142 AccreditedEYE
AccreditedEYE's picture

Apparently, this putz didn't see yields drop today... Seriously, when so many are saying to sell, you have to go contra and just buy the f-ing all time high. Wall Street analysts never tell the truth, they tell what helps their big buy side clients (read: hedge funds). You short, they squeeze you, you end up broke and they go home and bang the prom queen. It's that simple.

Sat, 01/18/2014 - 04:33 | 4343516 Carpenter1
Carpenter1's picture

Who are these "so many" you speak of? Bullish sentiment is through the roof, margin debt longing the market is in the stratosphere, and the known bears have all flipped into bulls.

ZH is not typical of market sentiment. I get the newspaper, business section filled with articles on which market segment will make you rich in 2014. 

Sun, 01/19/2014 - 02:33 | 4345408 garypaul
garypaul's picture

Umm, excuse me Mr. AccreditedEYE, but yields dropping today may not be a good sign for equities.

Sat, 01/18/2014 - 01:09 | 4343352 Clowns on Acid
Clowns on Acid's picture

Wasn't Tom "The Irishman" Fitzpatrick calling for a top at 1750 also ? I mean I agree with his assessment but it was tghe same assessment I agreed with at 1750. 

The Fed will not allow the Stalingrad and Poorski index go down more than 10% over the course of a year. Chaos would breal loose, and the fragile economy would collapse. I mean with the Kenyan interloper in the WH office , the Fed has to keep the plates spinning in the air counteracting te determinati0on of Borat and his crew of smirking jackals to bring down the house.

Sat, 01/18/2014 - 01:58 | 4343400 q99x2
q99x2's picture

Fuck Citi. Citi has no right to fear anything. Their bosses need to be locked up and their buildings turned into free range chicken farms.

Sat, 01/18/2014 - 10:49 | 4343795 stock trout
stock trout's picture

Citi came crawling to the taxpayer to the tune of $45 BILLION in 2008/2009 just to stay solvent. What were their analysts telling the public and their own management 6 months before? 

Sat, 01/18/2014 - 02:02 | 4343405 ConqueringFools
ConqueringFools's picture

Who the $&@? Cares? Seriously, is what happens this year matter? Does anyone give a flying $&@? About our future as a country? 10 years from now ,short a very rare breakthrough of technology, we are SOL! I mean this entire economy is unsustainable and no one seems to give a shit. The entire essence of our economy is unsustainable at a corporate level. Infinite growth in a finite world????? Yeah that's a brilliant way to run a civilization.......into the ground. I'm disgusted with what's happened to the USA. It's embarrassing!

Sat, 01/18/2014 - 04:40 | 4343526 Carpenter1
Carpenter1's picture

You're exactly right, this is the end game phsse of an empire where the aristocrats loot the treasury while the citizens are kept distracted by sports, sex, drugs, and stress. Luckily for this generation of slimeballs, they can print trillions of pieces of paper and throw it into the streets to keep the upper middle class and bottom level rich satisfied and asleep, while they steal the real assets.

Sat, 01/18/2014 - 03:21 | 4343456 Yen Cross
Yen Cross's picture

  Fiat , , quit slapping me,  roach motel.

Sat, 01/18/2014 - 09:47 | 4343721 toadold
toadold's picture

Well the guys who read the sheep livers for signs of the future are starting to get nervous. Seeing as how they make their money by pushing the "buy" side of things, I'm starting to get nervous also.  There seems to be a lot of CMYA floating to the top of the cess pool. 

Disclaimer: "If I'm so smart why ain't I rich?"

Sat, 01/18/2014 - 14:56 | 4344240 dizzyfingers
dizzyfingers's picture

"Sustainable" is illusion.

Tue, 01/21/2014 - 02:13 | 4350746 shawnmike
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