Here are 10 things that are worrying Barry Ritholtz about this current rally as he moved to a much more aggressive bullish stance. I want to disect this a little more and break them into technical/macro to see if there’s anything we can learn.
- technical
- macro
- technical
- macro
- macro
- macro
- technical
- macro
- technical (Disagree with this point and I’m going to nix it in the total. There is plenty of leadership in this rally it’s just not sector specific)
- macro
By my count macro wins the count, 6-3 and I’m a believer in the charts, nothing else. If there were more technical reasons here I’d be a little more concerned, but the macro events will take care of themselves… until they don’t. And we’ll see that in the charts.
There’s not a whole lot that is new to report in the way of market analysis. Today’s action is bullish in my opinion and there’s more upside to be had. Look at this chart of NFLX at the bottom of this post, and this market isn’t about to stop moving higher until the do a 2-1 or 3-1 stock split. This is a picture perfect chart pattern and while it seems like it’s overbought, it will most likely challenge $200/share.
1. Low volume: Friday’s quad-witch volume notwithstanding, volume has been extremely light for weeks now. Historically, light volume is associated with tops (disinterest) while heavy volume tends to accompany bottoms (capitulation).
2. Consensus on political outcome: If one more person announces coming gridlock is good for the market, I may have to scream. Conventional wisdom is unreliable about future unknowns. The widely held belief (assumptions, really) as to how this plays out is too pat, and creates an opportunity for surprise and disappointment.
3. Absence of Volatility: The VIX keeps sliding, as volatility fades. This may be reflecting complacency — never a net positive for stocks.
4. Housing overhang: One of several major macro economic factors weighing on the market. This is going to be an ongoing headwind, as we make our way down towards fair value.
5. Sentiment: Bullish sentiment (expectations that stock prices will rise over the next six months), rose 7% points to 50.9% in the latest AAII Sentiment Survey (historical average is 39%). Sentiment suddenly becomes bullish after each spasm higher sets off my contrary alarm bells.
6. Recession Porn “confusing“: The flip side of the bullish trader sentiment is the obsession with every negative datapoint. From Roubini to Zero Hedge, people seem to be hunting down anything foreboding. (How funny is this tweet: zerohedge once again pissed that asteroid avoided colliding with earth)
7. Overhead resistance:Market are coming up against levels where lots of supply lives. In the past, this is where resistance lay. Watch SPX 1152, NDX 2370, and Dow 10,800.
8. Job creation soft: The 2nd economic headwind. Until this improves, there can be little better than modest improvement in retail, home sales, and deleveraging.
9. Lack of market leadership: Quick, what are the market leaders in this cycle? Its hard to really say — Banks, Energy, Technology? Not really. How about Ag, Consumer Staples, Utilities? Its tough to see much in the way of leadership.
10. Consensus that gridlock is good: I am becoming increasingly wary of the consensus belief that gridlock is such a wonderful thing. If most of the market and economic gains have been driven by Fed/Treasury action, what does gridlock say about future market action?
