Gartman: "A Full-Fledged Bear Market Is Upon Us; We Added To Our Short"

For those wondering what would put a base under futures this morning just as they threatened to revisit the overnight session lows, the answer revealed itself when Dennis Gartman, speaking to Bloomberg radio just around 8:30am ET, said exactly what the BTFD algos were waiting for :

  • GARTMAN: THIS IS A CORRECTION, BUT SOMETHING WORSE IS AHEAD
  • GARTMAN: VIX SHOULD NORMALIZE IN THE NEXT MONTH OR TWO
  • GARTMAN: MAINTAINING A NET SHORT POSITION ON MARKETS

And then, just in case his bearishness was not heard by the "fade Gartman" algos, he echoed it in his latest Gartman letter:

SHARE PRICES HAVE VIRTUALLY COLLAPSED ALL AROUND THE WORLD as all ten of the markets comprising our international index have fallen and as nine of the ten have fallen by more than 1% as made evident by the amount of “red” in the prices of the various incumbent indices below. Indeed, four of the ten have fallen by more than 2% with the market in China’s mainland leading the way lower falling by more than 5%.

Our International Index has fallen by 404 points and that is far-and-away the largest one day drop in the history of this index in “point” terms. Further, having fallen by 3.3% this is also the single largest percentage drop in our Index’ history, stretching back into the late 80’s. Finally, noting that the all-time high for our International Index was forged January 29th at 12,853, stocks globally as measured by our Index are down 9.7%, which the various media outlets will tell us that the markets are only now “entering correction territory.” We are of the mind that anything more than a 5% correction is already a “correcting” market of very real consequence and that once markets have gone beyond a 7% decline something material… something more than a mere “correction”… is taking place. We fear that a fully-fledged bear market is now upon us as one level of supposed support after another has been tested and has been found wanting.

Incidentally, what Gartman said next, is spot on...

We have grown weary of hearing one pundit after another tell us that “The fundamentals have not changed; that the economy is strong and that stocks will go higher once this correction has run its course.” It is precisely because the fundamentals have not changed that stocks are weak, for the history of equities is to discount the future and the equity markets are looking beyond today’s economic fundamentals… which are, again, very strong… and are looking to the future when those fundamentals will eventually change for the worse. That is the job of the capital markets: to discount the future by looking into the future and not looking at the present.

But that doesn't matter: after all when the reflex kicks in, you do the opposite, and ask questions later.

Moving on and regarding actions taken in our retirement account here at TGL, we actually chose to exit our position in “fracking sand” right on the opening yesterday, but we retained our positions in the shares of the largest independent bank in Tidewater, Virginia and in the US’ largest manufacturer of ball bearings. Obviously in retrospect we wish we had reduced our long positions entirely, but that is not our style. Instead, having sold “sand,” we added to our short derivatives positions during the session, increasing our net short position in the process. We also added to our net short position in the long end of the US bond market and so despite the huge losses suffered by nearly everyone else we were profitable for the day.

As we write, stock index futures are trading higher, with the Dow futures trading 150 points higher and with the S&P futures trading 9-12 “points” higher. Should the S&P trade 15-20 “points” higher during the session later today almost certainly we’ll be adding to our derivatives position.

Well, it certainly looks like Dennis will have the chance to add to his derivative position.

So when will Gartman turn bullish again - so that shorting can resume that is? The answer: not for a while.

Finally we draw attention to the chart of the CNN Fear & Greed Index noting that having peaked several weeks ago when it very briefly touched 80 it has fallen to 8! This is as seriously over-sold as this index has become in the course of the past three years, only outdone when it fell to 2… yes 2!... back in the late summer of ’15. However, until such time as this index has clearly turned upward and is once again above 20 we shall refrain from turning bullish of equities.

Looks like it's time to buy...