Monday, June 13, 2011

Rosenberg On Why "Things Are Getting Interesting" And What Is Ailing The Market

David Rosenberg provides the key bulletized market observations that have marked the broad capital markets over the past few months.

  • $950 billion of paper equity wealth has been wiped off the map in the past six weeks.
  • The Dow is below 12,000 for the first time since March 18th.
  • The Transports are down more than 8% from the nearby highs and are down for the year as well
  • The Transports/Utilities ratio has broken down to its lowest level since November 9th of last year.
  • The Nasdaq is now down for the year (-0.3%)
  • The Russell 2000 index is also down for the year (-0.5%).
  • The S&P 500 is just 1.1% away from seeing the same fate.
  • The S&P 500 has declined in each of the past six weeks, the longest losing streak since June-July 2008.
  • The S&P 500 has fallen below its 150-day moving average after breaking below the 50-day and 100-day trendlines earlier in this corrective phase; the 200-day is the next level of support.
  • For the Dow, this is the longest string of weekly declines since the Fall of 2002.
  • The total six-week decline in the broad market is nearly 7% ... a slow bleed.
  • Junk bond spreads widened 25 basis points last week, more evidence of risk re-rating.
  • Investment-grade bond spreads widened out 14bps and new issue activity ($0.63 billion) was the lowest of the year.
  • Bank of America is back to being a $10 stock after a two week 8% slide — how do the bulls dismiss this out of hand? It's the biggest consumer bank in the country.
  • In the past six weeks, Energy, Industrials, Materials, Financials and Consumer Discretionary have all rolled over significantly. The defensives have outperformed dramatically — Healthcare, Utilities, Telecom, and Consumer Staples.

The last bullet point is precisely in line with our May 16 proposed QE Unwind compression trade.

And here is what Rosie believes is ailing the market. Nothing really new here:

  • The economy is cooling off and there is no policy stimulus in the pipeline. Ben Bernanke did give a sombre assessment of the economy last August in Jackson Hole but at the same time threw Mr. Market a bone by hinting at a new round of liquidity expansion. Last week, the Fed Chairman delivered an even more sobering outlook and did not offer any olive branch this time around.
  • So here we have it economic decele...

Sent from my iPad

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