For the longest time, it was "the most hated rally ever" and, as even the Davos crowd has now admitted, with good reason: it was all central bank manipulation and intervention, both of which are about to lose all potency forcing even the billionaires to admit that "the trade now is to hold as much cash as possible." As the WSJ summarized three weeks ago, the billionaires' "mood here was irritated, bordering on affronted, with what they say has been central-bank intervention that has gone on too long."
Well, be careful what you wish for, because as Deutsche Bank explained moments ago the central-bank intervention must go on, or else these billionaires will be even more irritated when their stocks crash and they become millionaires first, then hundred thousandaires, and so on.
In the meantime, the markets have rolled over, and after twice testing the key support level of 1,812 in the S&P 500, violent dead cat bounces have emerged every single time.
And yet in an unexpected twist, this time the majority of Wall Street "experts" is not only not cheering this rally on but is urging anyone who cares to listen to use it to liquidate positions; in fact thus may well be the "most hated repeat dead cat bounce ever."
Here are some observations, first from the technicians courtesy of BBG:
- MKM’s Jonathan Krinsky says 1,810-1,820 support "unlikely to hold," next test at S&P 500 falling to 1,740. There are “some bullish divergences that give merit to this counter-trend rally, [but] we are hard pressed to think a major low has been put in” Resistance to kick in at 1,940-1,960
- Oppenheimer’s Ari Wald says this will be “just another dead-cat bounce” unless internal breadth broadens, investors buy cyclicals, credit conditions improve; sees rally "capped" at 1,965-2,000; he adds that investors should buy large-cap Software & Service names, and sell: “value-based” sectors; Russell 2000; European, Japanese, emerging market stocks
- BTIG’s Katie Stockton says breakdowns "abundant in the past several weeks;" views rally “as an opportunity to take down exposure” S&P breaking uptrend line from 2009 low is additional sign rally is merely
Then there are the fundamentals guys, who keeps pounding the drum on selling the rally. Here is JPM's Mislav Matejka:
The key strategy in our view remains to use the rebound as an opportunity to sell. We are cautious on equities for 2016 and look for further weakness in 2H. Equity valuations have improved following the latest bout of weakness, but P/E multiples remain above historical median levels in most regions. The crucial concern is that profits are rolling over. The trailing EPS growth of MSCI World is outright negative at -5%, the lowest since the Great Recession. This is important, as in our framework, the three key lead indicators of the cycle remain: credit spreads, profit margins and the shape of the yield curve, all of which are sending negative signals. The lagging indicators were typically the labour market, actual credit growth and inflation.... Buybacks stocks have been strong outperformers for a long time in the US, but we note that the market does not seem to be rewarding these anymore. The Buyback index has lost 10% relative to the S&P500 since last April.
Here is BofA's Savita Subramanian:
Our S&P 500 forecast framework includes fundamental, technical, sentiment and valuation approaches, and while most still point to further upside for US equities, risks have increased: models now suggests 2000 for year-end, down from 2200. While this still implies attractive upside to US stocks through year-end, unless we see signs of a growth recovery, there may be significant near-term downside to current levels, in our view. Our short-term estimate revisions model has been bearish since September and continues to point to near-term risks; management guidance has grown increasingly pessimistic; and the percentage of stocks with forecast losses is at levels that preceded the last two bear markets
And BofA's chief technicians, Stephen Suttmeier:
The S&P 500 once again attempts an oversold rally on a test of the 1820-1812 support (1800 area). Closing above first resistance at 1872-1882 would set the stage for 1947-1950 (1950 area). We continue to view rallies as sellable bear market bounces and stalling below 1950 would increase the risk for a decisive break of the 1800 area support. Above 1950 is required to put in a double bottom off the 1812-1810 lows, but the double bottom off the late-Aug/late-Sep lows did not lead to new S&P 500 highs
Let's be clear though: none of the above matters, because the second the rally fizzles (and if anything, this week's terrible GDP data from Japan and trade data from China merely made a central bank intervention that much more likely), speculation emerges that :bad news is great again", and stocks soar splatting shorts who are forced to cover, and sending the illiquid "market" surging on absolutely nothing fundamental. As such any technical analysis is particularly meaningless.
It is if and only if central banks make it clear that they will abstain from any market corrective phase, that any analysis based on rational, established metrics - whether fundamental or technical - matters. Until then, the only thing that does matter is whether Kuroda, or Yellen, or Draghi will once again panic and act ouf of sheer desperation, crushing anyone who had the right trade on, but miscalculated the wrong central planner.