Analyst Warns The Decline In Stocks Is Going To Be Sharp

With gold surging and oil tumbling nearly 5 percent, today analyst Tom DeMark sounded the alarm bells regarding the recent stock market rally.

A portion of today’s note from Art Cashin: DeMark Says A Stall Here Could Be A Problem – Here’s a bit from Bloomberg:

The Standard & Poor’s 500 Index’s rally will give way to a full-blown retreat should the benchmark gauge lose altitude over the next few days, according to Tom DeMark, the chart analyst who predicted an advance in oil earlier this month.

A momentum formula employed by the DeMark Analytics LLC founder that compares closing prices with levels four days earlier would issue a bearish signal should the advance fizzle this week, he said. Specifically, it would foreshadow a decline should the S&P 500, which ended at 1,945.5 Monday, slip at Tuesday’s open and fall below 1,917, roughly where it ended last week, according to DeMark.

“The foundation of the ongoing rally is suspect,” DeMark, based in Scottsdale, Arizona, said in a phone interview. “The temporary buying produces a price vacuum beneath the market and accelerates the subsequent decline. The decline is going to be sharp.”

Overnight And Overseas – The PBOC lowered the reference rate for the yuan. That appears to have shaken markets a bit. There’s some demand for safe havens with the yen and gold both rising. Markets dipped in Asia and were generally softer in Europe.

Consensus – New WTI contract will likely call the tune. We’ll also see if the yuan moves toward center stage. Stay wary, alert and very, very nimble.

Also…

This was from Jeff Saut, at Raymond James: In past reports I have suggested a lot of the selling has been coming from the Sovereign Wealth Funds (SWFs), and the largest SWFs are in oil exporting countries. The point was/is that with Crude’s Crash these countries all need cash and the quickest way to get it is for the SWFs to sell securities.

According to the Sovereign Wealth Fund Institute, as gleaned by the keen-sighted David Lutz, “Sovereign wealth funds may withdraw $404.3 billion from global stock markets this year if oil prices remain in the $30 to $40 per barrel range. Wealth funds, which have amassed about $7 trillion in assets, exited about $213.4 billion of listed equities last year as the slump in crude oil put pressure on domestic finances.” Therefore, I find it extremely coincidental that both crude oil, and the S&P 500, bottomed on February 11, 2016.

Right now many pundits are opining the SPX will remain trapped in the 1810 to 1950 range it has been in since mid-January. I am not so sure that will be the case. As stated yesterday, my model is telegraphing sideways action into the first week of March, before another leg up toward 2000 – 2040, begins; although I must admit, yesterday didn’t look very sideways to me. This morning, however, oil is lower (-0.63%) and the S&P futures are down about 3 points. So we’ll see if sideways becomes the call into next week because right now there is not enough internal energy for a decisive upside breakout above 1950.

KWN
February 23, 2016