With the BTFD algos showing some uncharacteristic hesitancy this morning, Dennis Gartman's overnight commentary may provide just the catalyst they need to do their sworn duty and ramp stocks into the green within minutes of the cash open for one simple reason: Gartman fears a bear market of "some serious vintage" is now be upon us.
As excerpted from his latest overnight letter to clients:
STOCK PRICES ARE UNIVERSALLY WEAKER THIS MORNING as all ten of the markets comprising our International Index have fallen and as two of the ten… the markets in Japan and in Brazil… have fallen by more than 1% with the former down 1.5% as we write and as we finish TGL and with the latter down a truly material 2.3%. In the end, our Index has fallen 86 “points” or 0.7% and is down 175 “points” from its all-time high of 12,012 on Thursday of last week, or 1.4% below that high.
We note the “universal” nature of the weakness for having all ten markets moving in the same direction is indeed quite rare and historically this occurs at major turning points; that is, the lows were made back in the spring of ’09 amidst panic, final liquidation of stocks when we had one or two days of universal weakness followed by a day or two of universal strength. That was a major turning point, obviously. Further, the interim lows made in January of this past year were accompanied by one day of “universal” movement, and there are other examples that we can recall when prices moved in “universal” terms and which marked major turning points. Today’s “universal” weakness…only a week from the global market’s all-time high… is a harbinger of further material weakness we fear and sets the stage for the start of what we fear might well be a bear market of some serious vintage.
There is concern… very real concern… on our part that one market after another has broken its upward sloping trend line that has heretofore been very well defined. A trend line drawn across the recent lows of the Dow has been broken; a trend line drawn across the recent lows of the S&P has also; trend lines of the Russel… of the Nikkei… of the DAX… of the EUR STOXX 50… of the Tadawul in Saudi Arabia… have all been broken, and we can go of if need be but our point here is made. Something material has happened to the global equity market and only the most fervent of stock market bulls shall not recognize that fact.
Interestingly, this incipient stock market weakness is happening just as the world’s economies are in the best synchronous strength we’ve seen or noted in many, many years. “How,” some might ask, “can stocks fall as economic activity is strong and appears likely to continue for some while?” The answer is that all bear markets begin when economic activity is indeed at its peak just as all great bull markets begin at the depths of economic activity because as economic growth is peaking the demand on the part of plant, equipment and labor for capital draws that capital from the equity market where it has been residing for the previous several years. Equity market lows are marked precisely when economic activity is at its worst for the demand for capital on the part of plant, equipment and labor is at its worst and capital moves to the equity market instead, aided of course by the usual imposition of new capital created by the central banks.
We are at that former turning point; economic activity is strong and shall likely grow stronger for several months into the future. Employment rates are rising in North America, in Europe and in Asia, demanding capital while new capital projects are being planned and spending plans are being made strong. The “capital” for that labor, for those plans and for that additional labor shall migrate from the equity markets, even now at a time when the monetary authorities are either already erring toward monetary tightness or are seriously considering doing so.
It has always been thus and it shall always be thus. The equity market, by its very definition, anticipates the change in the economy, rising before the economy rises and falling before the economy falls. We are at the latter tipping point. It has been months in the coming, but it is here and adjustments in one’s investment policies must be made accordingly. The bear is upon is, we fear.