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"Everything Is Rolling Over" - BofA Watches The Carnage

In recent weeks Bank of America's new chief technician Stephen Suttmeier has been surprisingly bearish, predicting that the rally is over, as Tom DeMark cautioned yesterday, key support levels are not defended in which case the S&P 500 is looking at a substantially greater drop. Today, his skepticism reached new heights, when he warned that should the failure to break out higher persist then the market is facing a drop to as low ast 1575-1600, something which even Goldman now agrees with.

Below is an excerpt from his latest attempt at a diplomatic guide down:

The S&P 500 has not decisively broken down but the risk remains for a distribution top that goes back nearly 2-years. Resistances are 1950 and 1990-2025, but we cannot rule out a tactical breakout above 1950 that would suggest an interim double bottom off 1812-1810 that favors a rally to 2085. Even this tactically bullish scenario would mark another lower high within the downtrend from last May. At this point, the pattern and longer-term indicators suggest selling into rallies. Should the S&P 500 “The Generals” follow the weakness in the Value Line, NYSE, Russell 2000, and S&P Midcap 400 “The Troops”, there is risk below 1812-1810 toward 1730 (38.2% of 2011-2015 rally) and then 1600- 1575."

Or just a breakdown in both 7 years of momentum and central bank credibility.

 

However, Buried just a little deeper in the note, is his far less politically correct assessment, one which suggests that with most indicators rolling over, the last one to follow will be price, especially now that as Jack Lew explained there will be no surprise G-20 "rabbit in the hat" moment in Shanghai over the coming weekend.

Many indicators rolled over in advance of price, which is bearish

  • New year-long+ lows for S&P 500 on-balance-volume = distribution
  • S&P 500 VIGOR broke the October 2015/October 2014 lows = distribution
  • The US Most Active advance-decline line has completed a top. Similar tops precede/coincided with S&P 500 breakdowns in late 2007 and 2000.
  • Weekly global index-level advance-decline line remain weak
  • The Dow Theory Sell Signal in late August was reconfirmed on February 11
  • Monthly MACD sell signal last March and the first weekly MACD sell signal below zero since 2008 in early January. Bullish daily MACD & VXV/VIX support a tactical bounce. 
  • A rise off extreme lows for net free credit (free credit balances in cash and margin accounts net of the debit balance in margin accounts) could exacerbate an equity market sell-off.
  • The high yield market remains a risk with the US high yield index in a weaker pattern than the S&P 500. HY OAS has widened out of a 3-year bottom, similar to late 2007 / late 2008 – just before the financial crisis.
  • Growth weakening relative to Value for large caps, small caps, and MSCI ACWI. Relative breakdowns for FANG (FB, AMZN, NFLX, GOOGL) and NASDAQ 100 leadership suggests that “Generals” have begun to follow the “Troops”.
  • Bearish January Barometer and the S&P 500 is not following the normally bullish seasonal periods of November-January and November-April
  • 2016 is a Presidential Election year. The average return for an Election year with a non-1st term President is -3.2% vs. 14.1% in an Election year with a 1st term President and 7.6% for all Presidential Election years

Looks like central planners are going to have their hands full to preserve years of a carefully, if artificially, erected "wealth effect."