Is This Still A Bear Market?

For those of you who, like Donald Trump, can “feel the market”, the US session has “felt” like something of a disappointment over the past several days.

That’s an inherently subjective assessment, but when you see things like the previously beleaguered Stoxx 600 Autos & Parts index surging into a bull market, and when you see the DAX up nearly 4% this week coming off its best quarter since 2015, somehow the S&P’s 1.4% gain over the past three sessions just doesn’t “feel” all that inspired.

European autos surging more than 20% off the lows is just another sign of the proverbial times (as is the newly-christened bull market in Italian equities).

We talked at length earlier about cyclicals in the context of this week’s repricing higher of global growth expectations on the back of upbeat manufacturing data out of China and the US. So, the rationale/narrative is hardly lost on us. That said, there’s a sense in which a bull market in the SXAP seems premature at best and patently absurd at worst in light of still-simmering trade tensions between Washington and Brussels and considering the highly precarious state of the German economy, which is still teetering on the brink of recession.

Relatedly, a couple of upbeat PMI prints does not a convincing inflection in the Chinese cycle make. That is, we’re not out of the woods yet when it comes to China and you’re reminded that if you’re looking for answers when it comes to what’s critical for rescuing Germany and, in turn, the euro-area more generally from a downturn, you should go look East (young man).

Anyway, all of that to say that the top pane below may be an upside overshoot. The bottom pane is just a 30,000-level snapshot of the whole shabang, if you will.

Speaking of things that might be getting ahead of themselves, the SOX hit an all-time high on Wednesday. It’s on track for a fourth consecutive monthly gain.

Amusingly, one of the catalysts for the index’s Wednesday rally was Larry Kudlow who, while speaking at an event hosted by The Christian Science Monitor, said this:

[China] has for the first time acknowledged that we have a point [on IP theft]. Several points. [Before] they were in denial. And I think that has led to, you know, good negotiations.

“You know.”

More generally, tech stocks have now erased the entirety of the Q4 plunge (see bottom pane in the visual). In the same vein, the Nasdaq VIX has plunged back to pre-October levels and as you can see in the top panel below, down weeks for the Nasdaq 100 in 2019 are an endangered species.

Speaking of the Nasdaq VIX, Bloomberg noted on Wednesday that “traders appear to be betting… there’ll be no tech wreck in upcoming quarterly reports”. The spread between VXN and the “regular” VIX is sitting more than one standard deviation below its one-year average.

The top pane above speaks for itself. The S&P is gunning for new highs and suddenly, Marko Kolanovic’s SPX 3000 call – which some maligned as far-fetched just three months ago – looks like a foregone conclusion (knock on wood).

Finally, it’s worth noting that things don’t actually look all that extended stateside. As Bloomberg writes in the same linked post above, “a measly 10% [of stocks] have relative strength measures that top 70, underscoring a lack of exuberance for US equities.” Small caps and tech shares in China are another story, though, even as the 14-day RSI for the ChiNext has come off a bit over the past couple of weeks.

What does it all mean?!

Nothing, really.

And we’ll all get up tomorrow and parse the same stuff again in a largely fruitless effort to divine something about an indeterminate future. If we’re wrong, we’ll make up an excuse and if we’re right, we’ll point to things we said previously as proof of extraordinary prescience.

Somebody get Jeff Gundlach on the phone and ask him if this is still a bear market.

— Heisenberg Report (@heisenbergrpt) April 3, 2019