One week ago, despite the ECB's last ditch attempt to reflate the bond market by monetizing corporate bonds in hopes this spills over into stocks (via buybacks) and and broad inflation, Bank of America's Michael Hartnett was adamant: "sell the rally." He wasn't the only one: just a day earlier, after the market's violent kneejerk reaction lower to the ECB's (apparent) unwillingness to push rates even lower, Evercore ISI's chief technician, Rich Ross said "I'm Out. My Bullish tactical call is over."
Since then the S&P has only continued its torrid rise higher, and as of this moment is green for the year. So have these two skeptics thrown in the towel and said to buy stocks? No.
Here's why, first from the "fundamental" Hartnet:
Global Flow Trading Rule: contrarian “sell” signal for risk assets triggered last week on back of massive HY inflows.
We are sellers into strength as Feb despair on 4C's (China, Commodities, Credit, Consumer) flips to March/April euphoria; today's new all-time highs for defensive DJTNCG (personal & household goods) index + violent EM bear market rally in EM = uber-barbell of best of breed assets & junk assets best method for H1 outperformance; higher bank stocks & bond yields required to sustain broader risk rally.
With Japanese 10Y yields crashing overnight to all time lows and inverting Japan's curve, which will force the BOJ to again cut already negative rates even more negative soon, bond yields are unlikely to go higher any time soon.
As for the "technically" bearish Rich Ross, he is close to giving up, but not quite there yet. Here's why:
Clearly I have been surprised/wrong by the velocity and duration of recent dollar weakness which has singlehandedly reversed the bearish Crude/EM/EMFX/HY narrative which drove equities into the abyss to begin the year. And for now there remains little evidence of any trend exhaustion which would suggest that these powerful cross asset moves have run their course. Admittedly, it only stands to reason that in so far as Dollar weakness and Crude strength persists the world will be a better place for equities. Not all equities however, as Japan and Europe will be negatively impacted relatively by strength in Euro and Yen; EM will of course benefit over DM; and Growth (see Biotech) will feel the pain of Value’s (see Energy) gains.
Importantly, while a structural shift in the Dollar’s trajectory would represent a cross asset game changer which forces us to step back from our belief that we are in a cyclical Bear Market, we are not ready to make that call, as there remains little in the chart of the S&P 500 itself which leads us to believe that we are not witnessing a replay of the failed countertrend move from late 2015 or similar Bear Market rallies in both ‘01 and ’08.
If the chart of the S&P has taught us anything over the past two years it is that we should become less Bullish into strength and less Bearish into weakness until we break from this range and a new trend emerges. Finally, if pattern and form continue to hold then upside will be limited to 1-2% from current levels (yes I said that 2% ago) and I will abandon my call on a daily close above 2,077-2,086 accordingly.
So only 27 more points before the technicians are stopped out, which could easily take place in the next day or two: recall that Gartman may have already assured that the S&P will rise to 2,118 or effectively new all time highs, at which point he will, as noted yesterday, finally close out his long VIX position.