Gluskin Sheff’s David Rosenberg doesn’t see a bear market in stocks any time soon.
But this doesn’t mean he doesn’t see worrisome signs.
In a note Monday, Rosenberg wrote that these seven things could strain equity markets in the near term:
- The bear share in all the major surveys has reached multi-year bottoms.
- NYSE short interest slipped 2% in the second half of October which is a contrary negative.
- Negative divergences have also cropped back up in a technical sense and breadth is lacking.
- Ditto for momentum as fewer stocks are trading above their 200-day moving averages compared to the levels at prior cycle highs — in other words, market leadership is wanting.
- Put-call ratios and volumes are flashing yellow lights right now.
- Valuations are back pressing their cycle highs and acting as clear constraint.
- Even as Q3 EPS performance beats the consensus views (though only the views heading into reporting season — the results are not hitting the expectations prevailing this time last year), the analysts are cutting their estimates for Q4 and especially 2015 in light of the lagged impact of the dollar’s strength.
Rosenberg also identified some positives on the flipside. Strong incoming economic data and the possibility of looser monetary policy from the European Central Bank, People’s Bank of China and Bank of Japan could be tailwinds. The winter months may also provide a seasonal lift, as they are usually offer the best returns for equities.
“One are of the US that may soon get a lift is housing — at least if the Homebuilding stocks are any indication,” he added. “Now that capex growth has resumed and the state & local governments are contributing, residential real estate would provide the sole missing link left in this recovery.”
So, there’s good news to offset the bad.
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