Rosenberg: The Rally Has Stalled


You may think that we’re still in a bull market, but as David Rosenberg argues, we’re only going sideways at best. And with very little buying power behind that move.

Perhaps we’ve started the long, sideways slog that analysts at Morgan Stanley and elsewhere have been warning of.



We long maintained that this 60%+ rally from the lows was a bear market rally,
and unlike secular bull markets, these are to be rented and not owned.  Japan
had about a half a dozen of these since its credit collapse began nearly two
decades ago.  The short-covering was massive and continuous since the
government stepped in to effectively draw a line in the sand for big banks,
coupled with hedge funds leveraging up again after getting their credit lines re-
established and mutual fund managers taking their cash ratios back down to
where they were in late 2007.  
This buying power seems to now be subsiding; at the same time, insiders have
been sellers, the general public have been sellers (the retail investor would
never have believed back in March that they would ever have this opportunity
to shed their portfolio at a 60% premium, at least this quickly — the rally from
the March lows must have felt like winning the lottery or like a religious
experience at the very least) and pension funds have been rebalancing
towards the fixed-income market of late.  It does beg the question, who is the
marginal buyer going to be going forward?  
Volume is already tapering off as we saw yesterday, an indication that institutional
investors now recognise a market that is fully priced or perhaps looking at
price/earnings, price/book or price/dividend ratios, more than fully priced.  Higher
volume losses like we saw yesterday and the large number of ‘distribution days’
accumulated over the past month is very worrisome from a technical perspective. 
And, any market that can rally more than 60% at the same time the economy
sheds three million jobs is a market that was fuelled by technicals, not
fundamentals — hence our need to focus at least as much on the former as the
latter.  And the technical picture right now ain’t lookin’ so pretty.         
Here is the big surprise.  However the numbers have been cloaked by massive
government stimulus that can change the data for some period of time, we will
wake up in 2010 and discover that the recession has not ended.  This would come
as a shock to every Wall Street economist who continues to view the economic
backdrop as a cyclical phenomenon as opposed to a secular credit contraction.    
Let’s look at the facts: 
• At 1,190, the S&P 500 is no higher today than it was on October 14.  That
was about two months ago.  
• The financials are down nearly 10% from the October highs. 
• Small caps peaked in mid-October. 
• Food/beverage/tobacco, utilities and health care equity groups have been
outperforming in the past month. 
• Three-month bill yield are 0.04%.  (This is not Japan? Really?) 

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