The recent whiplash in the market has wreaked havoc on both momentum and trend-following following strategies, and traders, among which none is more iconic, or vocal, than Dennis Gartman. That said, the "world-renowned commodity guru" is even better known for calling contrarian inflection points, having been stopped out at a loss on 80% of his recent "recos."
As such we have some bad news for the bears: after a somewhat bullish transition phase in which Gartman advocated for higher prices despite making a "watershed call" in March, predicting a multi-year top to the market, he is once again pessimistic, and in his latest daily letter published around 4am this morning writes that a bear market has begun. Which may well explain why stock are surging today. To wit:
Getting to the numbers, our Index has fallen 30 points or just a bit less than 0.3%, but that puts it down 372 points for the year-to-date or down 3.1%. Again, however, far more important… at least in our opinion… is that as of this morning our Index is down 1072 “points” from its high in late January, or -8.3% from that high. Again, as we have said rather often recently, once a market is down more than 7% from its high we are of the opinion that a bear market has begun. Others constantly iterate that it takes a 20% drop in a major index to prove that a bear market has begun in some earnest, but we are of the mind that if one only begins to take defensive action to protect one’s wealth after a market has fallen 20% much… and in our eyes, far too much… has been lost by that point!
At any rate, the markets are beginning to understand that the experiments with QE have either wholly ended in the case of the US or are being considered for ending in the case of Europe. Too, markets discount the future and begin to turn higher during the depths of recessions in anticipation of the inevitable and eventual turn for the better by the economy in question AND markets turn lower rather far ahead of the inevitable and eventually turn for worse for the same economy. Thus, when we make our case for bearishness when appearing on TV or have been interviewed by the printed press or on radio we do not fail but to say that the US economy is doing quite well at this point; that help wanted signs are up everywhere; that the nation’s roads and ports are crowded and becoming more and more so; that building activity is high and is rising; that the nation’s crops are in excellent shape… that economically all is really very well; but stocks are weakening nonetheless. As they say in the Book of Common Prayer, “It is meet and right so to do.”
And Gartman's punchline:
[S]trength is to be sold into; weakness is only to be bought after the market has been sold. If one sells a thousand shares on strength, on weakness one might wish to buy back only half of that, with the intention of selling another thousand on any subsequent strength. This is now a bear market; trade then accordingly
Finally his actual trading reco:
Friday, June 22nd, we thought it reasonable and wise to use the strength then into which to sell and so we sold a unit of the S&P future short at or near to 2763 with a stop on a closing basis at 2785. We sold a 2nd unit as 2745 was taken out to the downside, and we suspect that most were able to sell the S&P future at or near to 2735. We shall sit tight with the two units in question, looking for a time and a place to sell a third unit. Our average price is now $2749 as the market is $2719 as we finish this morning and we shall move our stop down from $2747 to $2741… using our usual “hour or so” methodology to protect this profit from becoming a loss.
All else equal, this means that a spike to 2741, or less than 10 points away from the current price, is effectively guaranteed.