Having staked his reputation one week ago that the "bull market has come to an end", the jury is still out on Dennis Gartman's latest forecast, although one thing is becoming clear - the period of record low volatility has come to an abrupt end and the question is whether it now reverts (much) higher, or resumes its drift lower on more vol-selling and expectations that central banks will keep it all under control. And while we wait and see which way risk inflects, in his latest overnight note, the "world-renowned commodity guru" is out with an even more bombastic prognostication: "this may well be one of the most important
days in the future of the equity markets for a very long while" as it will either confirm or deny a rather unique technical pattern.
Below is the key excerpt from his latest, overnight note, with whose contents - we must admit - we largely agree:
STOCKS HAVE AGAIN FALLEN UNANIMOUSLY…AND MATERIALLY in global terms and what had heretofore been a rare circumstance when all ten markets incumbent in our International Index have fallen has now become commonplace for this happened one week ago today and it has happened yet again. Indeed, in the course of the past week, we’ve now seen three such “unanimous” days, for on Tuesday stocks “unanimously” rose. Such “unanimous” days had, until this week, been a truly rare event and had in the past marked major turning points in the market, marking final periods of exhaustion to the upside or to the down. It is interesting that with all of these violent price movements, stocks in global terms as measured by our Index have move barely at all, for last week our Index was 11,168 and this morning it is 11,226, or 0.5% higher.
We do not and we have not “trusted” equity valuations for quite some long while, believing that the markets individually and collectively have gone to levels that are not justified by earnings or economic fundamentals. The one fundamental that has been at work over the past several years has been the monetary expansions by the main monetary authorities: the Fed; the ECB and the Bank of Japan. Those authorities are now preparing to end their experiments with QE, and if they not prepared to end them they are at least prepared to slow down the seriousness of their expansions. This we find disconcerting.
Further, as has been the historic case, equity markets do indeed turn for the better long before economies move upward and out of recessions, always fueled by monetary expansion. Also, they turn down long before those same economies fall into recessions and indeed are usually moving lower as those economies are moving to their best levels as capital is demanded for plant and equipment. That capital must be taken from somewhere and that “somewhere” is the equity market… especially if the monetary authorities are becoming “stingy” with monetary expansion. That is where we are today; the economies are doing rather well… not exceedingly so; just nicely, pleasantly, “plowhorsedly” so… AND the monetary authorities are preparing to tighten policy.
Yesterday, and several times over the course of the past several weeks, we’ve written… comically, we trust… about the fact that all news, whether political or economic… has been accepted as being bullish news. As we said here yesterday, it matters not, in recent weeks, if earnings are better or worse, they’ve been bullish. If war is feared or if peace breaks out, it’s been bullish. If the fear is of inflation or deflation, those fears in either direction have been accepted as bullish of share prices. This we found almost comical in nature and this we found disconcerting. We have tried… unsuccessfully we shall admit…to err bearishly of equities even as “Old Turkey’s” admonition otherwise range in our ears and clouded our thoughts.
However, the fact that we’ve had three “unanimous” days in a week gives us very great… bearish… pause. The fact that corporate debt here in the US has risen to all-time highs gives us pause. The fact that corporate tax receipts have been moving lower, not higher, over the past many months gives us pause, for we’ve learned simply that corporations pay taxes only on “real profits” rather than upon some of the “engineered” profits they report to shareholders and to analysts alike. We are gravely concerned that the numbers of delinquent auto loans… loans that have been extended over the years from three years, to four and to five and six!... are high and are rising. We are concerned about the stunning levels of college/university debts weighing down upon our nation’s young voters who are swayed to the politics of the Left by demagogues who promise loan forgiveness and further free college; but most of all we are concerned that the “punch bowl” of monetary expansion is about to be taken away, or shall at the very least be threatened or slowed.
Finally, we cannot help but note once again that recent conversations with the public about their “stock holdings” cause us very real concerns, for the public truly believes that in holding mutual funds and/or ETFs that they’ve little if any exposure to the vagaries of the stock market. We had that conversation last week with our “trainer” and friends in the business have written to us this week of the same conversations they’ve had with doctors, store clerks, plumbers, and teachers et al. The public is convinced that their holdings are insured against market risk and/or that they’ve no risk whatsoever. The public is wrong and therein is our greatest fear.
In our recommendations we are long of the “bluer” chip indices while we are short of the “higher tech/broader” indices instead; that is we are long of the S&P and we are short of the NASDAQ. The more aggressive among us might wish to be long of the Dow Industrials while short of the Russell 2000, but our positioning is that of an incipient bear market. For months, the tape has been “painted” as the broad market has weakened even as the Dow has gone on to new highs. This will continue and those not involved in this manner should become involved today.
Finally, this may well be one of the most important days in the future of the equity markets for a very long while, for should the markets trade better and then close lower …and close hard upon their lows for the week… it will be an ominous technical sign. The great Richard Dennis of past trading fame always taught his “students,” … the famed “Turtles” as they were called… to sell markets closing their weeks on multi-week lows. It was the singular rule that made him wealthy and it is a rule we always take very seriously to heart. Thus, we shall watch today’s action with much heightened interest… more perhaps than at any time in many, many months. the futures are trading higher as we write, but a lower close today shall not be pretty.