The last time we reported on Dennis Gartman’s “retirement portfolio” positioning, we noted that on March 14 he had not only staked his reputation, but apparently his remaining AUM on a “Watershed” career call, namely that “equity markets have hit a multi-year top”, and while he appeared to be accurate until last Friday, yesterday’s events have clearly thrown the world-renowned commodity guru for a loop in the past 24 hours, and while he admits his confidence is shaken, his P&L appears to be willing to take some additional pain on the short side.
STOCK PRICES HAVE LEAPED DRAMATICALLY HIGHER and although we had said in our commentary yesterday that we had expected to see some rather material rebound from the weakness of late last week we certainly did not expect to see shares as measured by our International Index rise by a stunning 1.4%. A rally of perhaps 0.75-1.25% would have been the more likely target. As we said here yesterday,
We [shall not be] at all surprised to see the Dow rally perhaps 250-300 points from the lows made Friday, nor should we be even slightly surprised to see the S&P rallying 25-30 “points” from its lows. Indeed, we’d be rather surprised were that not happening, especially given the seriousness and nearly over-extendedness of the markets sell-of into Friday’s close.
We note then that the CNN Fear & Greed Index has fallen back to ‘single digits” and that is as good a measure as we can find to show how enormously over-sold the market had become. But even still, weakness is not to be bought and strength is still to be sold into. Again, we trust we are clear.
Just as clearly, however, we were wrong; the seriousness of the market’s over-sold condition and the change in psychology as the trade protection/tariff talks moderated over the weekend and into yesterday morning with Mr. Mnuchin’s comments to that effect was such that a massive “relief” rally was unleased [sic].
All of that said, markets do correct and they seem so often to correct back into “The Box” marking the 50-62% retracement levels of the move that had preceded. In the case of the nearby Dow futures, given that the break began from 25,500 and finished on Friday at 23,500, “The Box” stands between 24,500 on the low side and 24,735 on the high. The Dow futures are 24,300 as we write; not yet to the lower limit of The Box, and drawing close!
As for the S&P, the break began two and one-half weeks ago when the futures traded to 2,810. Last week’s low on Friday was 2,590; thus “The Box” exits between 2,700 and 2,725. The S&P futures are 2,670 as we write and are thus quite some distance from even the bottom of “The Box.”
Further we note that although the volumes traded yesterday were large, they were still well below the volumes that had been transacted last Wednesday, Thursday and Friday as prices collapsed. Note then the chart of the S&P futures this page with the volume “trends” highlighted. The volume is still following the trend; that is, volume rises as prices fall and falls as prices rise.
To that end, we are remaining short of the equity market here in the US with stops on our positions drawn down materially to make certain that our once material profits are not turned into losses, but we are otherwise holding to our thesis that stocks have entered into a global bear market; that the high made by our International Index on January 29th shall not be violated and that the proper course of action by those who are long of equities is certainly to avail themselves of this opportunity to reduce the exposure one more time before that opportunity is lost.
Nothing has changed fundamentally that caused us to become bearish of equities, for the P/e multiples remain egregiously over-extended, as do P/book value multiples. However, most importantly of all, the monetary authorities, whose aggressive additions of reserves to the world’s banking system created the bull market initially, are changing their course of action. Rather than adding reserves to the systems they are now in the process of withdrawing them at a time when the demand for capital on the part of plant/equipment and labor is high and is rising. That was our thesis when we issued our WATERSHED report on the 14th of this month and that remains our thesis this morning. But clearly our confidence in our thesis has been shaken.
And while Gartman is actually not wrong, what does the above mean for markets? As a reminder, here is his latest trade recommendation, and his trigger points:
Short of Three Units of the S&P futures; Thursday, March 15th, given the “reversals” noted at length in our
commentary earlier this week, and further given the multiple failures and the fact that the “volume” for weeks has been waning on market strength and rising on market weakness, we sold the S&P future short at or near to 2759 and we sold another Monday, March 19th, at or near $2750 for an average of $2754.Yesterday… Monday, March 26th… as recommended (although we really did not expect to have this trade “elected” quite as quickly as it was) we added a third unit at $2660, giving us a new average of $2722.50.
The futures closed last evening at $2660. We shall hold our stop at $2710 on a closing basis here in North America… hopefully protecting a once material profit from becoming a loss.
In short, so to speak, there is little to stop the S&P from rising another 40 points from the current level of 2,672.
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