Market Turbulence Or Something More?
Since March 2010, Mr. Bernstein has served as Senior Vice President, Research, for AH Lisanti Capital Growth, LLC, a registered investment adviser. This commentary solely represents Mr. Bernstein’s views and opinions as of June 2nd, 2010, does not constitute investment advice and does not depict the views of AH Lisanti Capital Growth, LLC.
It has been way too long since my last post....apologies. I went back to the dark side (Wall Street) about six months ago and have been busy ramping up coverage of various industries. I hope to be much more active on the site again and I am looking forward to the Urban Digs 2.0 launch. So let's get down to business. It is no secret to anyone that the stock market acts like crud, actually stock markets worldwide act like crud. The question becomes, is this a normal bull market correction, is it an "Asia crisis type" intermediate-term correction or the end of a cyclical bull market within a secular bear market in place since 2000?
It is not happenstance that the market ran into trouble around 1,200 on the S&P 500, which was the area that the market really fell off a cliff from, back in late 2008 (circa Lehman Bros. failure). I noted the resistance at these levels back in November of last year (No one Here But Us Chickens) and opined that there would be more skepticism about the rebound at some point....as I admitted at the time I am usually too early.
So the market has experienced a fainting spell just under major resistance.... predictable. But is it something more? Certainly the PIIGS situation is on everyone's mind, add some slowing in China and you have the makings of a "here we go again moment". (I will be addressing the China situation in a future post.) But from a technical standpoint, here are the key features of the chart above. The market, which had been in very good shape, trading above both its 50 and 200 day moving averages (with great breadth- meaning many many stocks and industry groups were participating in the rise), experienced a pull back to its 50 day moving average and then dove through its 200 day during the "flash crash". Vince Boening, the former DLJ market technician taught me years ago that when a market with a strongly positively sloped 200 day moving average (he actually used the 150 day), has a sudden breakdown, there is a natural dynamic tension for a snapback. (This lesson actually took place during the Asia crisis of 1998, when the market had a big swoon, but soon recovered and went on to new highs - Vince Boening was practically the only technician who stayed bullish through the "intermediate-term correction"). Right on cue this time the market had a huge rally catalyzed by the Trillion Euro bailout announcement.
Since that time, the market has begun to take on a much more toppy posture, rolling back over, breaking the flash crash lows and 200 day moving average again, and pushing the 50 day moving average into a negative (downward) slope. Recent action is now turning the "primary trend indicator" the 200 day moving average into a flat slope. The latest action has prompted highly regarded technicians like Stan Weinstein and Carter Worth (Vince Boening's disciple) to become highly suspect of this bull market's longevity. I too have become much less sanguine regarding the intermediate-term outlook (6 months) for the market. However, I would note that the market is now very oversold as illustrated by the MACD indicator at the bottom of chart above. It is very likely that we will see a rally from here, that will work off this oversold situation. My bet is that the rally conks out around 1,150 on the S&P tracing out a "head and shoulders top". Let's hope I am wrong - until the 200 day moving average becomes negatively sloped I won't turn fully bearish. The strong market and active fund raising of Wall Street has proven salubrious to the New York City economy and real estate market as Urban Digs has acknowledged. My outlook is turning more cautious with the technical deterioration I see in the market.
Posted by MeekSheep
Wed Jun 2nd, 2010 08:46 PM
You won't have to wait terribly much longer. There's going to be a ton of positive news this week. Homebuilder confidence up, hiring up (gotta love the census), a new scaled back stimulus, and of course all those sold homes. Everyone is glossing over the fact that it's taking 12-14 months to foreclose and the inventory is sky high. Or the default rates in Freddie/Fannie. Or that gold demand is astronomical. I hope we get a HUGE rally. Then I can close out.
Posted by Mbt
Wed Jun 2nd, 2010 10:27 PM
I think another reason fees are not being paid and free months not offered is that prices have come down. Apartments are moving but part of the reason is that prices came down to a point at which they will move.
Posted by Insider
Fri Jun 4th, 2010 11:03 AM
You are wise to be cautious. The situation in Europe makes hedging more expensive, and therefore leads to higher relative interest rates for everyone.
Posted by anon
Fri Jun 4th, 2010 11:46 AM
MeekSheep - the positive news is flooding in and having quite an impact on the markets, eh?
Posted by jeff
Fri Jun 4th, 2010 01:43 PM
Today's action really making me question whether we will see much of an oversold bounce. Watch SPX 1040, DOW 9770 and COMP 2140 over the next week. If they give way....look out below.
Posted by In Debt We Trust
Fri Jun 4th, 2010 06:29 PM
Meeksheep, not sure if you were being sarcastic in the first post in light of today's market action.
Why no mention of Europe or the Fed's bailout of Tishman Speyer?
Posted by paris- noah
Sat Jun 5th, 2010 12:18 AM
always when Im away...Paris is showing no signs of a slowdown, but then again the weather is amazing and this city rocks!
last time I left in sept 2008, Lehman failed. Seems like the marts always get uber nutz when I leave town. Seems like there is a growing distrust on headlines everywhere. The reflation we knew was nothing fundamental, built on carry, and could crack at any time. the question is, when do things really get hairy and start to get those margin calls and emotions really going. I feel an event, although likely not a huge one, may be near. Euro under 1.20, unreal. Parity hear we come?
Posted by anonymous
Sat Jun 5th, 2010 08:55 AM
noah: are you at the french open? men's final going to be amazing.
looks like sell in may and go away was the trade of the year
Posted by coach handbags
Fri Aug 13th, 2010 04:46 AM
Let's hope I am wrong - until the 200 day moving average becomes negatively sloped I won't turn fully bearish. The strong market and active fund raising of Wall Street has proven salubrious to the New York City economy and real estate market as Urban Digs has acknowledged. My outlook is turning more cautious with the technical deterioration I see in the market.