In the last 2 weeks, I have largely missed these short squeeze rallies to higher-highs in the SP500. I missed making money on them in last part of 2007 too. This time, the volume is a lot lower (both actual market volume and the daily yip-yap of who is going to be LBO’d next), but things I am seeing and hearing out there are starting to rhyme.
I won’t remind you who those were that used to parrot that “the world is awash with liquidity” in 2007, but I will show you a chart that A) isn’t new and B) gets emailed to me at this point every other day. This is one way the perpetual bulls are trying to justify chasing this rally up here - the “cash on the sidelines.” Yes, there is a lot of it. But there was with the SP500 -74% lower too.
The second chart shows you the Pain Trade since the February 8th lows. By any historical analysis of SP500 price performance, a +11.2% melt-up in over a 7-week timeline is not normal. Some people are calling this a complacency rally. I disagree - I think it’s a Fear Rally at this point. There is outright fear of either being short squeezed or redeemed for missing another massive move higher. This fear factor is usually most prominent at month and quarter ends (Wednesday).
Anything north of the 1175-1178 range in the SP500 would be a 2.5 standard deviation move in my model. These don’t happen very often on the duration I am using (immediate term TRADE). We could easily see an early month correction in April like we did in February. The intermediate term TREND line of support for the SP500 is at 1118. From today’s price, that would be a -5% correction that my models wouldn’t consider anything but proactively predictable.
I’m not calling for a 2008 style crash, yet. But I am calling for another correction.
Keith R. McCullough
Chief Executive Officer