Doug Kass says the liquidity rally is over. Byron Wien says the Disbelievers have doubted this rally the whole way up, and there is no reason to give them the benefit of the doubt.

Me? I have no clue. As Q2 began, we rebalanced back to our model portfolio, which involved shaving some equity off and adding fixed income exposure.  After that, we then took a little more equity exposure off  — but less than 10%.

What do you think? Are we due for a shellacking, or is this merely some digestion after a blistering first quarter?

~~~

What say ye?

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

51 Responses to “Holiday Weekend Open Thread: Is the Rally Over ?”

  1. “A relative spike(from lows) in volatility yes; pending crash, no. Not yet.”

    http://alphaadder.blogspot.com/

    Have a great Holiday Weekend all!

  2. PeterR says:

    The Big Churn continues, perhaps through Earth Year 002,021.

  3. nofoulsontheplayground says:

    Until the NYA makes a new post 2009 higher high, the rally still has legs.

    We will also have plenty of warning as to the end of the rally through narrowing breadth. In the runup to the Oct. 2007 highs 4 stocks contributed something like 80% of the move up out of the August 2007 lows to the Oct. 2007 highs.

    Lastly, those who think this is a secular bull market as opposed to a cyclical bull market need to explain why the futures continue to trade at a discount to cash.

    If this were a real secular bull market, the futures would trade at a premium to cash.

  4. nofoulsontheplayground says:

    I should clarify a point on my last comment. The 4 stocks that contributed to 80% of the move up into the 2007 highs out of the August 2007 lows was on the Nasdaq. Two of the stocks were AAPL and RIMM. I’m not completely sure of the other two, although I seem to recall AMZN was one.

  5. VennData says:

    Clueless here too. Stocks and bonds may go up, or down, or stay the same.

    Just set an asset allocation you can live with, and rebalance to that allocation once a year. Use cheap indexes… or ETFs and you’ll save on capital gains taxes too. Try 35% VTI, 35% VXUS, 30% IPE or some Coffee house type allocation.

    You’ll get your share of the stockmarket returns and you’ll have the same risk profile, at all times.

    When the employment numbers get revised upward ( or down!) You will have your asset allocation, that is, your choosen risk profile.

  6. Frilton Miedman says:

    About a yer ago Barry said he was 70% out of the market, that was my queue to get short.

    Barry now, “Me? I have no clue…”

    There is no possible way I’m better at this thn BR, but what the hey…

    My biggest concern, the Minsky moment, spawned by something like the Ryan plan for a 70% consumption driven economy replete with broke consumers, I call it “the Ryan one term president plan”.

    Cisco’s guidance was an eye opener as well, on the effects of spending cuts.

  7. Bill in SF says:

    Barry,

    Since this is tax season: Has anyone looked at stock market performance vs whether or not the average Joe owed Uncle Sam vs received a tax rebate?

    I thought this link was interesting because of the discrepancy between what was owed vs what was gravy, depending on the third party involvement. (Think, Turbo Timmy)

    Joel Stein Has Four Accountants:

    http://www.businessweek.com/articles/2012-04-05/adventures-in-tax-preparation

  8. DW auto says:

    Seems the Fed efforts to reflate, pushes a hand full of stock to ludicrous heights, and with consequences unintended, like a jenga tower, too tall and narrow, risks collapsing. Hence, the Fed removes the punch bowl for a while to broaden the base.

  9. Robert M says:

    The problem I have w/ the market is it appears everything is as close to equivalence as it can be. I can’t trust any of the old stock reliables because of the number of black hole exchanges which distort NHs/NLs, VOL, Uvol/Dvol, et al. W/ zirp what is the cost of money? Commodities @ zirp have no real world cost short of a real devicit of them and that is for the most part rare except if you don’t have the money to buy them.
    So I am just pure stock picking based on what I think a flattest(sic?) economy will pay for.

  10. Barnnie says:

    Seeing as the leadership-for-rally-continuance is greatly narrowing AND small caps are lagging badly —-> top’s in for a few weeks to eliminate negative chart divergences……… There ‘could always be’ a few remaining leaders rallying, I guess, but “watch AAPL” for the dive to lower stabilization soon!!

  11. r says:

    The market goes up a while, then down a while.
    It (QQQ and AAPL) have gone straight up for 3 months straight.
    Only the greedy want to try and get every last penny before it turns. It will turn eventually.
    If not. I am all cash, waiting to short AAPL next month at $1000

  12. Barnnie says:

    Among the ‘few remaining leaders’ could be the “gun group” (RGR & SWHC & maybe TASR eventually…). RGR apparently cannot make guns fast enough & SWHC has a new hot weapon (the governor mix-six handgun)

  13. Patrick Neid says:

    Putting aside the fact that the market can have a 10% correction at any time–especially after extended runs, until Apple breaks the market is fine. Combine that with an election year which finds Obama and Bernanke wanting to keep their jobs I think the market continues to churn higher. When it does turn down it will be for reasons not currently in the news. A failure at new all time highs would not surprise me.

  14. Mike in Nola says:

    This rally has been driven by Fed/ECB liquidity injections giving the big houses money to play with. You think all those Euro’s went into investments in the EU? They ain’t stupid.

    Whether it continues depends on one of the big two deciding to print money again, or at least convince the market that it intends to.

  15. Dima says:

    Agree with Barry’s comment. No clue and I couldn’t tell who the mark is – UH OH – time to cash in the chips. I think I’ll have a drink at the bar and go chat up that lovely young lady. Good luck to the remaining players.

  16. Frilton Miedman says:

    Barnnie, hint, short Q’s / long RUT, worse case, a repeat of the 2000 Nasdaq bubble that inevitably reverts to the mean, albeit, that reversion took over a year, but I don’t think we have another tech bubble on our hands.

  17. guru says:

    The mere fact that all the above comments have a unanimously bearish taint means to me that the market, after a brief and shallow correction, will be heading to the previous all-time high of 1565 by year-end. That’s when all the doubters will have their opportunity to make some money betting against the market going higher …. not before then.

  18. Barnnie says:

    Hi FM,
    I do charting & am particularly impressed with the “AROON technical indicator” for the S&P500 using all important time frames………… in stockcharts (daily, weekly, monthly). This technical indicator is now ‘bullish’ in all the important time frames (especially the monthly) & this tells me we’re quite likely in for an enormous long run bull run….( the monthly AROON never has flip-flopped from bull to bear until at least 4 yrs bull run, & usually much longer than 4 yrs) —– This indicator, now, has only been bullish on the monthly charts for about 1 & 1/2 yrs, so far, so much more to go is likely!!

  19. ssc says:

    Market puke, fed ease, market rally, fed says no more, market puke, fed ease.. repeat until fed ease, market puke..

  20. Rich in NJ says:

    I suspect that the Fed has wanted to save some ammo in order to have more effect in case the EU flared up again.

  21. Frilton Miedman says:

    Barnnie, sorry, no indicators allowed in my trades, the vast majority of them are derivatives of moving averages, moving averages are past performance.

    The only thing I may occasionally observe is trendlines, but even then I factor fundamentals first.

    Myself included, it occurs to me we’re all forgetting to factor the current QE from the EU, the US QE moved global markets, I see no reason the EU’s actions can’t do the same where the E.U. collectively represents the same percentage of global commerce as the U.S.

    From an outside-looking-in perspective, the last few years almost seems like a struggle for power between global Central banks/governments and uuber wealthy bond vigilante’s, a gargantuan game of monopoly.

  22. Futuredome says:

    To much overblown Fed jargon. The FED hasn’t provided any “liquidity” for awhile. Most of the surge has come from energy and tech. I suspect that is over for now.

    12,000′s is what the 10,000′s were to the last expansion. I suspect we tred around there for awhile.

  23. Through the Looking Glass says:

    Men have gone mad singing that Wall St tune and this one:

    Warning!!: may get stuck in yo head forever!

    http://www.youtube.com/watch?v=7kKU1S0lWxo

  24. bda_guy says:

    If the rally is over, we’re still in the early days of the turnover. I don’t expect April to be a good month but I wouldn’t be surprised if May/June recaptures any retrenchment that occurs here. The more interesting time period to watch will be July onwards.

  25. Giovanni says:

    Sell in May and go away.

  26. mugabe says:

    I also think that we’re in the early stages of the turnover. It’s true that SPY is not diSplaying any type of major weakness:

    http://stockcharts.com/h-sc/ui?s=SPY&p=W&yr=3&mn=0&dy=0&id=p54843325421

    The weekly MACD is possiblystarting to turn but it’s early days yet.

    Greater cause for concern is the number of stocks above below 150 day moving average:

    http://stockcharts.com/h-sc/ui?s=$SPXA150&p=W&yr=3&mn=0&dy=0&id=p72005012067

    This is turning both on the chart and on the MACD. This is a sign that we’re in the eigthth or nineth innings of this rally.

    Add to this that seasonality is now against stock: the kast 2 rallies ended in the second half of April.

    To me it says put a tight stop on longs and begin to hedge with weaker sectors, eg XLE.

  27. mugabe says:

    When I say hedge, i mean short.

  28. jackjames77 says:

    Good read re the current “rally”
    http://www.gold-eagle.com/editorials_12/lundeen032012.html

  29. hdoggy says:

    Who Cares?

    There’s the answer for you low volume. The boomers are not investing in mass like they did for decades and all of us are a bit gun shy. Waiting for future retires to jump back in the market is probably the biggest mistake you’re making. Your frame of reference may be off.

    Barry’s cognitive foible is there for all of us to see. He’s waiting for the suckers (us) to jump in like they always have in the past.

    My guess is the stock market continues to offer very little return on a risk adjusted basis for the next few years.

  30. TLH says:

    The market has to go down so it can go back up. The public now sees it that way. They are no longer buying. The Federal Reserve must return to normalcy. Government must restructure. Taxes, health care, military, and lobbying (bribes) are all broken. All political elites must go. Will the least elite win in November?

  31. Chief Tomahawk says:

    BR, what happened to day #5 of the real estate series?

  32. Coming Monday and Tuesday

  33. perra says:

    Some markets have been more of less left out of the recent rally. I’ve been waiting for China to rally since 2010!

    It seems stock picking is necessary to make any money in China…At least Apple is rallying in China:

    The iOS device penetration rate is now well over 10% in Beijing and Shanghai!

    http://www.stenvall-skoeld.com/1579/china-iphone-ipad-analysis

  34. jb says:

    As a retiree and a very interested observer of the markets, I’m very comfortable with my 30-40% exposure in safer stocks, intermediate bond allocation, and lots of cash like investments. The cash will only be invested if the so-called ” fat pitch” is thrown. Based on my conversations with baby boomers within ten years of retirement and other people in my age bracket, the expected cash on the sidelines that the so-called “dumb money” is expected to invest is just a pipe dream! Security, safety and suspicion are the most frequently mentioned terms.

  35. Sechel says:

    Returns start with the price paid. So consider where we are and would you have be a bull in 1966?

    The cyclically adjusted P/E ratio, which uses 10 years of profits to make the calculation, is about 22, well above its long-term average of about 16. While the current level is lower than at the peaks of 2000 and 2007—one a bubble, the other fueled by easy money—it is about where it was when the stock market peaked in 1966, just before entering 16 years of essentially flat performance.

    http://online.wsj.com/article/SB20001424052702304750404577321721996458902.html?

  36. Doofus says:

    Don’t know if this is *really* the “Best Indicator Ever”, but another potential discussion item:

    http://advisorperspectives.com/dshort/guest/John-Carlucci-Best-Indicator-Ever-Update.php

  37. constantnormal says:

    I’m still sticking with my general view that the administration and the Fed will do everything humanly (and inhumanly) possible to keep this charade rolling along, until sometime close to the election, when we will follow the Israelis into Iran, for oil and re-election prospects.

    Does that mean the rally will continue? No.
    Does that mean we will or will not see a “sell in May …” situation develop? No. Either possibility is still viable. But given the size of the rally thus far, it might be prudent to go to cash now …

    I reiterate, we will not see The Big Crash and resumption of The Greater Depression until the next president, whomever it turns out to be, takes office in 2013.

    At that point, the fun & games experienced thus far will be as unto a picnic, an aperitif before our banquet of pain. We will finally set some convincing lows in housing in 2014-206, as well as levels of unemployment/underemployment that will make comparisons with the Depression of the 1930s popular with every pundit. Possibly a crisis in the Bananamerican fiscal circus (I know, many will find that difficult to imagine), up to and including a partial default on Treasury debt and the collapse of Medicare.

    And by way of confirmation, I posed the following questions to the Magic 8-Ball (a device that has a log-term track record as good as any technical analysis metric in existence):

    1) Will the rally continue?
    A) “BETTER NOT TELL YOU NOW”

    2) Will I be better off if I move to 100% cash on Monday?
    A) “IT IS DECIDEDLY SO”

    3) Will a major crash occur in 2012?
    A) “IT IS CERTAIN”

    And there you have it, the Final Word from the Magic 8-Ball.

    At least as good as the guidance from the average 2-and-20 manager.

  38. rktbrkr says:

    The punk 120K jobs report is evidence the winter that wasn’t pulled jobs and the economy ahead, outdoor construction in the northeast/midwest continued like it was the Carolinas, shopping trips to malls were unaffected by weather etc. Now it’s time to pay the piper and also the $4 gas pumper.

  39. Jim67545 says:

    A moving average method I use, which has proven helpful based on back testing, on Wednesday flashed “out” for both QQQ and SPY. However, it sometimes reverses within a few days. The charts do not suggest a breakdown. Entrails and tea leaves are inconclusive.

    My theory is that for the past few years people (and non-people like computers) have flowed funds to sectors or stocks enjoying positive (or if shorting, negative) momentum. It seemingly has discarded value investing or buy and hold except for high dividend things. My belief is that with uncertainties in the far east and strong negatives in Europe and with the US markets showing a positive momentum, money is flowing here – not only domestic funds but foreign funds. It’s a marginal demand thing.

    I have seen no empiracle evidence supporting this belief but, if true, these funds are here only until momentum turns and they will then flee somewhere else which seems more promising.

  40. Greg0658 says:

    I’ve got this box open .. maybe I’m getting my wish .. for marketeers to make businesses not rank other businesses around like dogs .. this marketplace needs to be put back in a box .. imo

  41. dead hobo says:

    Please define ‘rally’.

    If you mean all assets rise without regard to value, then yes … thankfully.

    If you mean all liquidity is going away into mattresses due to bank runs and terror, causing asset prices to plummet … no, not even close.

    As I mentioned last week, liquidity will likely flow from long term treasuries, gold, and commodities into US stocks. My best guess is stock picking returns and earnings will once again be important in stock valuation.

    Neither labor number (ADP or NFP) were good enough to make me want to buy anything at this time. If the muppets run away next week , I will probably raise some cash to buy a dip. If not I plan to rotate to large cap growth from a couple of lesser performers and hold pat on other investments. If the muppets panic unconditionally, I will use most remaining cash to buy at the bottom. cha ching!!

    The NFP looked a little cylical. A 15 month bar chart of monthly numbers in the newspaper made this number look almost predictable, yet better than the number from last March. Last year had a similar pattern, with the NFP rising monthly for another 11 months and dipping large in month 12. Other stats, at this time, still support US recovery.

    In a year or two, I suspect Asia and emerging markets will be the investment destination spot for above average returns. Then, maybe a year later, Europe will be out of functional reorganization and ready for more outsized returns.

  42. Barnnie says:

    Hi dh,
    http://www.mcoscillator.com/index.php?/learning_center/weekly_chart/one_to_three_years_left_for_golds_run/one_to_three_years_left_for_golds_run
    — I strongly recommend you & others on this blog read the above article & absorb its message! Gold has much higher prices ahead as we ‘demolish the value’ of our currency!!!

  43. rootless says:

    dead hobo, you wrote:

    As I mentioned last week, liquidity will likely flow from long term treasuries, gold, and commodities into US stocks.

    You still haven’t got it right. There is no flow of liquidity between asset classes. Assets are not being filled with liquidity. They aren’t storage containers for liquidity. And liquidity is not drained from assets.

  44. constantnormal says:

    Hey, BR, how about a follow-up discussion / free-for-all in the near future, the topic being:

    “Will Sell-in-May… be a viable strategy this year?”

    I think there is sufficient weirdness in the economy and the markets, and Reality in general as to make this an open question. I’m not sure that historical guidelines have much utility at present. I can hardly see the historical shore from here.

    We have the rather substantial run-up thus far this year, the fact that it is an election year, a Fed chairman determined(?) to hold the line on/at ZIRP, and a dearth of competing asset classes (at least as I see it). And a bunch of other things, including many that I’m sure I never considered.

  45. Frilton Miedman says:

    Jim67545 Says:
    April 7th, 2012 at 9:16 am
    “A moving average method I use, which has proven helpful based on back testing, on Wednesday flashed “out” for both QQQ and SPY. However, it sometimes reverses within a few days. The charts do not suggest a breakdown. Entrails and tea leaves are inconclusive.

    My theory is that for the past few years people (and non-people like computers) have flowed funds to sectors or stocks enjoying positive (or if shorting, negative) momentum.”

    Jim, important to note, growth exceeds value in a low rate environment, we’ve had ZIRP in place for several years now.

    Over longer time frames, value exceeds growth, the change in momentum usually occurs later into a bull market/business cycle as the Fed tightens or the market anticipates tightening.

    The dual mandate makes it a smart idea to watch commodities/basic materials relative to the market, as well as keeping an eye on unemployment.

  46. Frilton Miedman says:

    Jim67545 Says:
    April 7th, 2012 at 9:16 am
    “My theory is that for the past few years people (and non-people like computers) have flowed funds to sectors or stocks enjoying positive (or if shorting, negative) momentum.”

    Value V Growth is dependent on Fed policy, low rates boost growth faster than value at the onset of a recovery, as the Fed tightens, value surpasses.

    We’ve had ZIRP for three years now.

  47. Ny Stock Guy says:

    I’m guessing a lot of drama for the next nine months, but the S&P will get to 1550-1600 by the end of the year.

  48. 4whatitsworth says:

    If it were not election year I would say yes the rally is over and the fat lady is at our doorstep.

    There not much to create an upside interest rates can’t go any lower, the pace of profit growth is clearly unsustainable, the baby boomers are retiring and the US political engine is at a stand off.

    Now, given that it is election year who the heck knows what the craze’s in Washington will do. I Wonder if Bernanke is pro or con Obama?

  49. Jim67545 says:

    DAMN!! I enjoy considering other folk’s perspectives here.

  50. [...] we saw on Friday’s Open Thread, there is a decent amount of confusion regarding intermediate-term market [...]

  51. GZR says:

    I have no way of knowing for sure, but as a long-time observer, I think there is a lot of risk here.

    Outside the US, there are few stock markets that are showing positive signs. Japan, Brazil, and Mexico are marginally positive—15 Trillion of 55 Trillion or about 27% of the top 20 GDP is in those countries and Japan is the bulk of that. My measurement of this factor is the SMA 200 day average. It lags the market, but it seldom changes direction. In addition, the 20 day EMA’s for these markets is almost universally declining. Plus, the momentum of almost all these markets is moving down from fairly high levels but are still mostly over zero, which leads me to believe they have a ways to go before momentum reverses. The table below shows the data.

    The put/call ratio is about 3 to 1 against right now and moving to a worsening position.

    The VIX is “as low as it goes”, and short term 20d EMA and momentum have turned up.

    Interest rates are near the bottom of the channel as measured by TYK.

    It appears there is an interest rate turn (at least in the short term) as measured by TBT which is showing a classic dish bottom.

    The Baltic Dry Index is hovering in the same area as it did at the 2008 bottom.

    In many ways, the present looks a lot like June 2008 on the charts.

    There is a lot of talk about earnings topping. I don’t know if this is true, but if it is it is not encouraging.

    You know the story on housing better than almost anyone. I think it is safe to say there is not much help coming from the housing area.

    In summary, I see a lot of risk for a downdraft, and not a lot of reason for an updraft. Paraphrasing Munger’s article you published on Feb 20, I think this is the time to be light on the bets. Of course, it is never clear what the Fed may do. Nor can we predict the Euro reaction or a military “event”

    Anecdotally from the hinterlands, the economy is really dead. $4.00 gas is back and hurting people. People are disgusted with both political parties. A lot of people still do not understand how badly they have been used and are still being used. You are to be congratulated for your efforts to enlighten the country.Your blog and your Washington Post articles should be must reading for everyone who cares about our country.