Bear Market

All you need to know.

Confirming once again that anyone who subscribes to newsletters looking for guidance on market inflection points, trend, and momentum deserves to lose every last penny, is the just released mea culpa from "world renowned economist" and lately even more renowned flip-flopper Dennis Gartman who has just admitted that his call from December 13, which stated that "gold is in the "beginnings of a real bear market" and conveniently mocked right here, may have been, well, wrong. Financial Post, which apparently is one of the subscribers to said newsletter, reports that "In his daily investment letter Thursday, Mr. Gartman officially  reversed his outlook for gold, saying he now views the precious metal as being in a bull market. The new position follows a month where Mr. Gartman was the subject of some high-profile name calling from fellow investment letter writer, Peter Grandich. Mr. Grandich called Mr. Gartman “one of the Three Stooges” of gold forecasting after the latter declared that gold was officially in a bear market (if you’re wondering, the other two accused of being in that trio are Jeff Christian of CPM Group and Jon Nadler of Kitco)." Frankly there is no point to devolve to name calling - those who are not familiar with Gartman need but take one look at the performance of his ETF since inception - suffice it to say that with Gartman now flip flopping to the long side, it is likely time to get the hell out of dodge.

While we are the last to put much weight in the predictive power of technical analysis, lately it has become all too clear that the only thing more worthless than technicals is fundamentals. Which unfortunately means that with the lowest common denominator (and marginal price setter) in the market being robots, in turn programmed by 20 year old math Ph.Ds who only know charts, it may be time to revise our skepticism. Enter Citigroup's Tom Fitzpatrick, who together with Goldman's John Noyce, are the two best sellsiders in this particular field. In short, neither has much good to sayl in fact when it comes to near-term bearish sentiment, it will be hard to find someone as pessimistic as Fitzpatrick, even among the Janjuahs and Rosenbergs of the world. Citi's conclusion from a just released note should be enough to scare anyone who believes that the bear market rally started just about a month ago will persist: "While we respect the October monthly close on the S&P 500, we did not close above the 12 month moving average...we believe the bear market rally is behind us and anticipate a move towards the 1,000-1,015 target over the weeks and months ahead." And while charts will never be a good guide as to what words may come out of G-Pip's mouth next, with so much market action these days being purely backward looking, we would urge caution.

Remember the bear market? The 20% drop from the July highs to August and most recently October 4th lows has seen a major retrace in the last 3 weeks as we managed to gain 20.7% from the 10/4 lows to the highs of today. Risk was definitely on today though it felt much more like capitulation - especially in credit - than new longs being laid out. Everything was bid today so an end of day comment is somewhat redundant but we would note that HYG underperformed HY and equities (hedges being laid out again?), quality IG new issues were active (but not HY), and commodities tore higher. TSY yields smashed higher (especially post a weak auction) with everyone's favorite carry trade (2s10s30s) jumping once again. The EUR dominated FX markets with FX carry driving ES to a huge day but interestingly (for once), despite the huge up day in stocks, HY and IG credit outperformed - narrowing that gap. IG was the best performer (beta adjusted) overall - dramatically outperforming with a 14bps compression (over 5bps rich to fair-value). The similarities to both price action and sentiment from the March 2008 period are undeniable as investors once again decide whether the status quo has ben restored by more promises or is a larger and more scary reality being created.

The S&P fought reality valiantly, and after every other market in the world entered a bear market long ago, reality won. The S&P 500 is now over 20% lower from the highs, and we are officially in a bear market. Gun to our head, and with an eye on where MS is trading, we are going much lower. But even gun to our head we are unsure if the S&P will enter triple digits first, or if that will be preceded by Morgan Stanley "Benjamin Button-ing" its teenager status...

Here's what markets do when they break critical support: they re-test lows. That sets up an eventual target for this decline of 670, which would be a re-test of the March 2009 lows. Bulls have to answer this question: once the 200-week MA is broken, why shouldn't this market re-test the recent low? If it's "different this time," what makes it different from every other era and market? It might be a good time to recall that index funds are only "safe" in the sense that they aggregate the risk of all stocks in the index. A market that declines 40% will take index funds down 40%. There is nothing "safe" about long-equity funds that track a market heading down. Nobody knows what will happen tomorrow, much less 30 days from now or three months from now, but as of this snapshot of the market, the evidence of a Bear market decline is rather substantial, and the technical evidence of a Bull market is rather thin. As the saying goes, keep it simple.

The question that I have been asked more today than almost any other time in the past month has been "Is This The Time To Start Buying Back In?".  With the recent rally off of very oversold conditions in July and August, a reflex rally has been in the offing.   Also, with this being the end of the month, we are seeing portfolio window dressing for mutual funds. However, a brief review of our technical indicators is in order to determine where we are in this current market environment and what the potential "risk" versus "reward" of being fully invested currently is. 

According to the Fed, the BUY AND HOLD is dead. 

Since Zero Hedge updates over the next sevearal few hours will be sparse, please use this opportunity to share your transitory outlooks on current events, life, google trending topics, and pretty much anything else.

The week is finally over, and the numbers are in: after narrowly avoiding the "bear market" two weeks ago when we dipped by 19.63%, or about two ticks away from the dreaded 20% correction, the subsequent dead cat bounce fabricated in no small part courtesy of Europe's unprecedented intervention in all markets, both bond and stock, has ended, and we are back to being under 2% away from reentering a Bear Market (and closing at the Lows of the Day). That however will not be the end of the world: as the chart below shows America will actually be the last major market to enter join the Bear party, so little shame there. As the second chart from Rosenberg today shows all the developed countries plus all the BRICs are already there. We expect an ongoing selloff into the last week of August (no need to remind what happens then), at which point the market may get a surprise or two. In the meantime, we depart with Rosie's words: "the US economy is slipping into recession, Europe is as well, and HP served up a reminder that this earnings season has not been the slam-dunk positive reporting period posted in the prior eight quarters. But disciplined investors who took our advice should not be feeling much pain at all." Who laughs last again?

In a wonderful piece of financial engineering, the Federal Reserve has reduced the duration of the recent bear market to 36 hours.

When looking at these 3 charts – banking, emerging markets, and China – it is hard to make the case that we are NOT in a bear market already.

Last night it was the world growth dynamo (China), now it's Europe's growth dynamo (Germany): DAX (and STOXX) both enter bear market territory (20% correction) following the Shanghai Composite. The entire world is on its way to the 25% correction we said is inevitable before QE3 is started.

That is all.

This isn’t the time to hope.  This is the time to take some action to protect yourself and your money.