The Short Covering Rally is OVER

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Nov 24, 2009 7:25 am

I saw david (broken clock perma-bear) Rosenberg on CNBC.   Like his other permabear peeps (merideth, dr death) they are getting a bit huffy (bwahahha).     They actually sound pretty stupid.

here is what you say, dave:

 
You got us out but
 
you fukced up big time not getting in.   you suck and your wrong.

(please note date of article)

thanks Dave    

David Rosenberg: The Short-Covering Rally Is Finished, Here Comes The Leg Down

Joe Weisenthal|May. 19, 2009, 6:06 PM | 26,853 |37

PrintTags: Investing, Stocks, Stock Market, Markets
Recently departed Merrill Lynch bear David Rosenberg is out with his first report from his new outfit, Gluskin Sheff.

Not surprisingly, he picks up where he left off from his last report out of Merrill. He explains further why he believes that this big, two-and-half month runup is a sucker's rally based on short covering in the trashiest, low-quality stocks.

The Pragmatic Capitalist offers up a big chunk of the letter:

WHAT TO DO IF THE BEAR MARKET RALLY HAS ENDED?

The bulls enjoyed and the bears endured a massive 37% rally in the S&P 500 from the March 9th lows to the May 8th highs. Both in terms of duration and magnitude, this proved to be the most intense rally during this 20-month long bear market. And, the bounce has been so impressive that it has taken what was widely considered to be a massively undervalued stock market
in early March to one that is now at least moderately expensive. (The FTSE All-World market P/E ratio on forward earnings estimates is now around 15x, well above pre-Lehman collapse levels and nearly double the lows for the cycle.)

Since the rebound from the March 9th lows was again led by the four sectors that led the decline during the bear phase – financials, consumer discretionary, materials and industrials – it stands to reason that this was just another counter-trend rally. What we know about history is that the sectors that led the downturn are never the ones to emerge as leaders in the next sustainable bull market.

The fact that the best performing stocks were the ones with the lowest quality ratings and with the largest short interest says a lot about the nature of this rally as well — the 50 heaviest shorted stocks tripled the advance among the 50 least shorted stocks — that its sustainability is in doubt. In other words, this was a rally built largely on short covering, pension fund rebalancing and the emergence of hope wrapped up in ‘green shoot’ data points. Technical factors ostensibly played a role too because the bounce in March came off the most oversold levels in the equity market since 1932 and the rally ended just as the S&P 500 kissed the 200-day moving average – as it has been known to do in these bear market rallies. In the aftermath of the weak April U.S. retail sales results (see more below) even in the face of the latest round of tax relief, some second-guessing over the extent of any second half economic recovery has occurred. This may have shown up in the markets towards the end of the latest rally as volume weakened as the major averages advanced. Considering that cyclical bear markets typically end 4-5 months before recessions run their course, it is imperative that the downturn ends by August to justify the March lows in the S&P 500 and the other major averages. As doubts emerge over whether in fact the green shoots amount to anything more than dandelions, it now looks as though the major averages are about to embark on the fabled retesting phase towards the March lows. (We should add that the just-released consensus forecasts published by the Philly Fed show that professional economists just trimmed their Q3 real GDP projections to a 0.4% annual rate from the 1.0% estimate previously.)

We will be watching to see whether the lows hold as they did in March 2003, which symbolized the onset of the cyclical bull phase at the time; or whether this turns out to be a violation of the lows as was the case in the summer of 2002, which represented the final severe leg of the tech-induced bear market of that prior cycle.

For the near-term, it matters little because the testing process does seem to be in place right now and this carries with it well-established investment patterns. Over the past year, we have seen four other testing phases (they all failed as the market did break to new lows). Under the proviso that the S&P 500 hit an interim peak back on May 8th at 930 (it is down 3% since, even with yesterday’s bounce), here is what the recent historical record tells us to expect (at a minimum, take profits).

• The average length of the testing phase is 53 calendar days and 38 business days (versus 45 calendar days and 33 business days for the interim bear market rallies).

• On average, the S&P 500 undergoes a correction of more than 20%.

• The sectors that led during the rally, corrected most during the selloff. This means that financials, consumer discretionary, materials and industrials should underperform in the next few months, while health care, consumer staples, utilities and telecom services should emerge as the leaders.

• Market volatility more than doubles, on average.

• Bonds rally, with the 10-year Treasury note yield down nearly 15 basis points, on average.

• The flight-to-safety during these periods means that the Canadian dollar declines (on average by 10%), while the trade-weighed U.S. dollar rallies more than 6%.

• Commodity prices decline an average of 15%, again as cyclical trades unwind.

• Corporate spreads (Baa) widen an average of more than 60 basis points; it is very important to be focused on high-quality paper during these market testing periods as high-yield spreads widen, on average, by more than 300 basis points (and keep in mind the vast outperformance, which is typical, during the bear market rallies).

• What we discovered during this process was that gold performed quite well during both the bear market rallies and the subsequent sell offs (and despite the flows back in the U.S. dollar). This may be an indication that gold is in a secular bull market.

• So what works best during the retest? Health care, staples, utilities; high quality bonds; the U.S. dollar.
Nov 24, 2009 8:43 am


the three stooges
 

 
PLUS,  this guy NOT a poser.    the REAL dr death
Nov 24, 2009 8:48 am

David Rosenberg could probably afford to skip a few cheeseburgers.

Nov 24, 2009 8:56 am

You seem very nervous , almost like you have to justify the reason that you continue to be bullish in the face of worsening news. ( except that being propped up by government dollars ). I don't know how long you have been in the business, but I wish you had the records of all of the bulls during the tech bubble. It's almost word for word what you are saying now. You and your clients , without question , are going to get creamed in the near future. the dollar stock mkt trade is the only thing propping up the averages and it's like a rubber band that can only stretch so far. when it breaks ...which will be soon ....it's done over. think of all of the real estate players two years ago that were saying the mkt is going up...I can buy this fixer up and flip it in a week...etc... Same thing now...all anyone ever talks about in the news..wsj, barrons, and cnbc is how there is no catalyst for stocks to decline. Soon you will find out that that is the catalyst. It's a very crowded trade...it's becoming mainstream...Just pray your not the last guy out the door before the building burns







Nov 24, 2009 9:07 am

Do you still stand by your S&P 500 at 945 prediction by Nov 30, 2009?

Nov 24, 2009 10:01 am

S&p 945? WTF?

Nov 24, 2009 10:08 am
BOSS:

You seem very nervous , almost like you have to justify the reason that you continue to be bullish in the face of worsening news. ( except that being propped up by government dollars ). I don't know how long you have been in the business, but I wish you had the records of all of the bulls during the tech bubble. It's almost word for word what you are saying now. You and your clients , without question , are going to get creamed in the near future. the dollar stock mkt trade is the only thing propping up the averages and it's like a rubber band that can only stretch so far. when it breaks ...which will be soon ....it's done over. think of all of the real estate players two years ago that were saying the mkt is going up...I can buy this fixer up and flip it in a week...etc... Same thing now...all anyone ever talks about in the news..wsj, barrons, and cnbc is how there is no catalyst for stocks to decline. Soon you will find out that that is the catalyst. It's a very crowded trade...it's becoming mainstream...Just pray your not the last guy out the door before the building burns



 
funny
 
My hand to God, im not.      The crowd will not be right.
 
(you will probably get 1/3 retracment at some point.   will be at higher levels) 
Nov 24, 2009 10:36 am

the best indicator ever that the emerging mkts have topped out :

AXA equitable increased their exposure

Nov 24, 2009 10:49 am
Shania Twain:
BOSS:

You seem very nervous , almost like you have to justify the reason that you continue to be bullish in the face of worsening news. ( except that being propped up by government dollars ). I don't know how long you have been in the business, but I wish you had the records of all of the bulls during the tech bubble. It's almost word for word what you are saying now. You and your clients , without question , are going to get creamed in the near future. the dollar stock mkt trade is the only thing propping up the averages and it's like a rubber band that can only stretch so far. when it breaks ...which will be soon ....it's done over. think of all of the real estate players two years ago that were saying the mkt is going up...I can buy this fixer up and flip it in a week...etc... Same thing now...all anyone ever talks about in the news..wsj, barrons, and cnbc is how there is no catalyst for stocks to decline. Soon you will find out that that is the catalyst. It's a very crowded trade...it's becoming mainstream...Just pray your not the last guy out the door before the building burns



 
funny
 
My hand to God, im not.      The crowd will not be right.
 
(you will probably get 1/3 retracment at some point.   will be at higher levels) 
 
I think you're correct in your assumption that the rally continues. the market has been and always will be manipulated, nothing can stop the biggest bank in the world ( US Govt.), but please quit saying bulls are not the crowd. We are!!!!!! It's not even a close race for christ's sake!!!!!!!!!!
 
Nov 24, 2009 11:35 am
BigKahuna:
Shania Twain:
BOSS:

You seem very nervous , almost like you have to justify the reason that you continue to be bullish in the face of worsening news. ( except that being propped up by government dollars ). I don't know how long you have been in the business, but I wish you had the records of all of the bulls during the tech bubble. It's almost word for word what you are saying now. You and your clients , without question , are going to get creamed in the near future. the dollar stock mkt trade is the only thing propping up the averages and it's like a rubber band that can only stretch so far. when it breaks ...which will be soon ....it's done over. think of all of the real estate players two years ago that were saying the mkt is going up...I can buy this fixer up and flip it in a week...etc... Same thing now...all anyone ever talks about in the news..wsj, barrons, and cnbc is how there is no catalyst for stocks to decline. Soon you will find out that that is the catalyst. It's a very crowded trade...it's becoming mainstream...Just pray your not the last guy out the door before the building burns



 
funny
 
My hand to God, im not.      The crowd will not be right.
 
(you will probably get 1/3 retracment at some point.   will be at higher levels) 
 
I think you're correct in your assumption that the rally continues. the market has been and always will be manipulated, nothing can stop the biggest bank in the world ( US Govt.), but please quit saying bulls are not the crowd. We are!!!!!! It's not even a close race for christ's sake!!!!!!!!!!
 
 
look at AAII
look at trim tabs  (70% run and equities STILL have net outflows)
look at investors intel  (and the bulls ALL have qualifiers)
look at money market relative to SPX value  
ask your clients
read this thread
ask your friends
 
this is the most unloved, under owned BULL in the history of the planet 
 
sept-oct 08
feb-mar 09
changed people
 
cash the trap
Nov 24, 2009 11:37 am
SometimesNowhere:

David Rosenberg could probably afford to skip a few cheeseburgers.

 
good call
 
merideth?    y or n?  I go back and forth on her
Nov 24, 2009 11:51 am

you guys making fun of two people that could buy both of you at least 100 times over is really funny

Nov 24, 2009 11:52 am

Money doesn't make them more attractive/healthy people.

Nov 24, 2009 11:52 am

Shania,

 
YOU'RE INSANE!!!!!! You sound foolish. This rally is going to continue just the same. Just like it always has. Don't bet against the US stock market!
Nov 24, 2009 11:55 am

They are making fun of their physical appearance to mask the fact that deep down they know M.W and D.R are dead right on the mkt and economy ,   and it scares them to death.



By the way you never responded to my 1992 facts

Nov 24, 2009 12:14 pm

And you didn't reiterate your S&P 500 November call.

Nov 24, 2009 12:20 pm
Wet_Blanket:

And you didn't reiterate your S&P 500 November call.





I think you have me confused with Meletio

Nov 24, 2009 12:25 pm

I think BOSS is 100 % correct

Nov 24, 2009 12:29 pm

BTW



black friday/cyber monday gonna rock



one thing USA is good at is pissing away money.



Nov 24, 2009 12:31 pm
Leroy the Masochist:

I think BOSS is 100 % correct





dude



do u have to get a new email address every time u get a new name?



I cant talk much since i waste my life on this site but......how many names u have now?



im starting to worry about u