David Rosenber tends to be pretty bearish in his tone, though it’s been a while since we’ve seen him offer a real, numerical forecast.
That changed today:
This is a stock market that is as overpriced as it was heading into the October
1987 crash and as the case back then, it wasn’t about the fundamentals but
about policy discord between the U.S., Japan and Germany. A market priced for
perfection requires perfection on all fronts.
The comments on Fast Money were that the fundamentals hadn’t changed —
this selloff is pure emotion. Really? We had a 70% rally from the March low in
advance of any serious turn in the economic data — this was purely a bear
market rally that was rooted in the technicals (and short coverings). How do we
know? Because at the January 19 high in the S&P 500 of 1150 it had
completed a 50% retracement off the slide from the October 2007 highs to the
March 2009 trough.
Now, since this is a technically-driven market, we are bound to get a 50%
reversal of the bear market rally, which would take us to 912 on the S&P 500 —
so keep your seatbelts on. We had been warning for a while that too much
complacency had set in, and what happens when the market shoots up 70%
without taking any serious break along the way? Investors tend to believe that
we are into some sustainable new parabolic bull run.
Meanwhile, its seems that Mr. Market had already started to top out back in
mid-September, yet so many pundits still believed we were still in the throes of a
bull phase market even though a vivid topping formation was becoming
increasingly evident. How about that slide in bond yields yesterday? In the
realm of technical analysis, a break towards 3.2% on the U.S. 10-year Treasury
note yield cannot be ruled out over the near-term.
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