The theme I have been discussing lately are the 3 C’s: Clarity, Conviction & Consensus:
1) Clarity: Right now, there is none. By our metrics, we are not at a major bottom. Nor can we say that the data supports the argument that we are at or near a top. Indeed, we are now more than 15% away from recent highs.
Nor are we in any sort of trend. There is no clear momentum in any direction.
And the prior trading range of SPX 1041 to 1170 is now decisively broken. So the most we can say is that we might be in a new trading range, from 975- 104o.
2) Conviction: The street fight between bulls and bears is notable for the lack of real conviction amongst the players. The bears have had the upper hand for 2 months, yet we don’t see the shorts pressing their bets.
The bulls argue that earnings are good, companies have clean balance sheets, and growth is supposed to slow after the initial post recession surge. Yet they don’t seem to back up their arguments with cold hard cash. Some Value guys argue stocks are cheap, but they recall getting burned in 2008 the last time we saw that. They seem to be sitting pat.
Yes, its the Summer, and trading should slow down — but the abysmal volume tells us there is little institutional interest in making any commitments to equities and even less enthusiasm from Main Street.
3) Consensus: I cannot recall the last time a) so many people were projecting a recession; b) the crowd got it right.
There seems to be a consensus that a double dip is likely. Most everyone is arguing that ECRI’s weekly leading index supports a double dip. Everyone, that is, except for ECRI themselves.
The recessionistas — Hussman and others — argue from a sample set of 7 recessions, and while I do not disagree with using historical data, we are constrained by having a mere century’s worth. Its better than nothing, but only marginally so.
The worst thing about being mortal is that we won’t be around 1,000 years from now. By then, we will have a sufficient data set to draw better supported conclusions as to what, if anything, historical data projects about markets and the economy.
Until then, exercise, watch your cholesterol, and wait for more clarity.
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