We awoke this morning to see futures deep in the red. Over the past two weeks, markets seem indecisive, unable to make much progress. Lots of days began with positive trades, only to roll over and fall into losses. Several days that began in the red closed negative, though usually off their worst levels. Last week’s big ugly Monday is still fresh in many traders’ minds.

Might this be the start of the long-awaited, overdue correction?

There certainly have been plenty of catalysts that could hasten a 10 percent drop or worse. Earnings season has begun rather inauspiciously. There have been several high profile disappointments — IBM, Best Buy, Intel and Citigroup come to mind.

On the other side of the world, China is slowing, with January manufacturing Purchasing Managers’ Index falling to a 6-month low and breaking 50 (49.6). New orders, exports, employment and backlogs all showed declines. On top of that, HSBC reports that China continues to face a cash shortage within its financial system (why does that sound so familiar?).

All this takes place against the backdrop of the U.S. Federal Reserve taper. The first step toward removing the bond-buying program was put into place last month, with the next step possibly coming as soon as the two-day Open Market Committee meeting next week. An unusually accommodative monetary policy is beginning to come to the natural end of its unnatural life. Indeed, the degree of stimulus has been so enormous that it might take three full years or even longer to fully unwind it. Congress has exhibited no interest in post-recession fiscal stimulus — unlike in prior recessions -– so perhaps the FOMC ‘s slow withdrawal is a mixed blessing.

 

Continues here

Category: Data Analysis, Investing, Technical Analysis, Trading

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.

13 Responses to “The Bull Market Ends (or Is It Just a Correction?)”

  1. LeftCoastIndependent says:

    Ahhh yes, the QE party is coming to an end. The girl doesn’t look so good anymore, now that we are starting to sober up.

  2. supercorm says:

    On top of that, HSBC reports that China continues to face a cash shortage within its financial system (why does that sound so familiar?).

    The question “why does that sound so familiar” is key here. After crying out wolf for so many years, nobody listen to China’s possible problems anymore. Analysts and strategists hurt themselves for too long on this, and are refraining from highlighting possible risks in China, they are even talking about all that cash on the side waiting to be deployed and support the economy.

    This is when I worry, when nobody is. Fact is, only 25% of all loans are from banks, 75% from the shadow banking (ligit, like thrusts, and non-ligit). Most loans are considered investments and used to garantee other loans … one failure will have domino impact, and very quickly. Funny enough, the ICBC golden elephant settlement date is just the day before Chinese New Year … will be fun, a cash Crunch amid loan defaults. How do you stimulate a economy that has way too many bridges and roads to nowhere ?! The local economy is not about to pick up, and if the renminbi weakens (which China is trying to prevent, although “complaining” about its currency strength) then fast money will leave,, amplifying China’ s credit crunch.

    As the Fed is getting ready to stop its asset purchase program (more cost than benefits I believe is their main worry here), cheap loans fueling China’s growth will also come to an end. Hopefully, USA’s inventory rebuilding activity wasn’t premature (ie high PMIs, GDP on inventories), but weak US non-manufacturing and Phily Fed new orders (high correlation with PMI) tells me there could be a soft patch ahead as corporations probably got to optimist at the wrong moment …

  3. wisegrowth says:

    We have seen the top of the market… there will be setbacks and corrections throughout the year. But there is very little topside left.

  4. TomOfTheNorth says:

    My postmaster (for a tiny hamlet in rural MN) was asking me yesterday about accessing options price data. It turns out he’s ‘investigating’ a subscription service’s results before trading on their advice -which I would generally encourage – however he doesn’t know a call from a put or strike from premium…..

    I suppose there are numerous ways to interpret this. My thought was that if the sales folks have worked their way this far down their call lists….well……then yeah, it’s over.

  5. odnalro zeraus says:

    Top changes at the Federal Reserve generally leads the market downwards.
    But then, , who wants to be “square” and hold Cash?

    • Based on what? How much data do we have on that? What is the causative factor? How much of this is mere coincidence? Is this yet another case of correlation being confused for causation?

      • odnalro zeraus says:

        The best proof is common sense which dictates that a significant change in an agent affecting a given universe should have an effect on that universe. Surprised you don’t have any data on that? You have data on everything. Correlation and causation sound very scientific; which may not be the best approach to a gambler’s paradise.

      • xynz says:

        “The Best Proof is Common Sense”

        http://www.youtube.com/watch?v=G2y8Sx4B2Sk

        Since we’re not discussing mathematical theorems, then the only acceptable “proof” of your model of the universe is to have it make a significant prediction and then have that prediction TESTED via empirical observation. If it passes an empirical TEST, then your model has been validated (but not proven).

        If your model of the universe cannot conform to the above requirement, then your model is no better than religious belief.

        “Surprised you don’t have any data on that? You have data on everything.”

        Since YOU are the one who has made the claims for your model, then YOU are the one who must provide the evidence to validate your claims.

  6. j4mes425 says:

    Markets sometimes pick and choose what they want to pay attention to. If 49.6 wasn’t a ‘surprise’, this would’ve been a non-factor in my opinion. Also Dalio coincidentally called mentions China’s bubble a day earlier from Davos.

    China’s been in a bubble for the better part of 3 years now, markets pick and choose what they pay attention to, and when. Yet, VWO is his largest position? Do the math?..

    EEM has nothing more to do with the Dollar against EM currencies, than it does the actual fundamentals of the companies in the index. Its all capital flows, and is something many dont consider when calling EM ‘Cheap’.

    A depreciating currency acts like tightening for those countries, whom already have higher domestic interest rates, flattening interest rate curves, and relatively high levels of inflation. The concern is worthy, and value alone right now wont keep them from cheapening further in my oppinion.

    As an asset allocator it would be better to pick region to region – particularly Eastern Europe.

    Poland would be an area to consider if your a believer in a recovering Europe.

    And No, I disagree with Fed personnel leading to market downturns. The fat tails have been because of changes in the yield curve, due in part to a tightening of monetary policy. So long as policy is relaxed, and the yield curve remains steep, new credit will find its way in economy, which therefore will find its way onto company earnings reports.

    The Fed isn’t magical, they’re using the Taylor rule to determine that, and its rather obvious by Bernanke’s statements. Pay attention to that on when to anticipate fed tightening.

  7. boveri says:

    We can only tell more watching the price action tomorrow but as of today’s close the S&P is still in a bullish three-week-plus range between 1819 and 1848. Technical traders will try to touch and rebound from 1819.

  8. [...] The Bull Market Ends (or Is It Just a Correction?) Barry Ritholtz. Funny, sentiment was almost universally bullish a mere ten days ago? [...]

  9. Willy2 says:

    I find it remarkable that one B. Ritholtz is actually asking for advice from the readers of this blog. Did he drink too much of his Kool-Aid. “The markets are fairly valued” and that kind of crap.

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