JPMorgan’s Marko Kolanovic and Nomura’s Charlie McElligott were not the only one who were calling for a bounce near the October lows: so was, correctly, Dennis Gartman. Which begs the question: has the “Gartman sentiment indicator” finally turned? Perhaps: it is too early to know right now. However, it is notable that unlike Kolanovic, who is calling for continued market upside into year end, Gartman is now the contrarian voice and urges readers of the Gartman letter to start offloading shares and short the market, to wit:
we are “officially” going to recommend short sales of equities on this rally, something we’ve obviously refrained from doing thus far and something we have been correct in avoiding to date… we do not make this recommendation lightly, but we are making it nonetheless. It is time to sell… finally… patience having been rewarded.
Below we excerpt from Gartman’s latest letter on why his sentiment has shifted back to bearish:
[B]efore we all become far too enthralled by the strength…and we have to admit that the rally in the US markets was indeed enthralling… let’s do remember that for the year-to-date, even after the eight session rally we’ve seen, stocks as measured by our Index are still down… and are down rather materially.
Now, we shall grant that the “internals” yesterday were positive; indeed they were very so. On the aggregated NYSE and NASDAQ markets, 4,439 stocks rose while only 1,663 stocks fell, or 2.66 stocks rose for every one that fell. That is reasonably impressive. Too, the volume on the upside was far higher than was the volume on the downside for on the aggregated exchanges 4.837 billion shares traded higher while a scant 1.688 billion traded lower, for a ratio of 2.86:1 to the upside. Again, this was and is impressive, but even these ratios lag far behind the much more severe ratios in the bearish direction that evolved two and three weeks ago as share prices were falling.
This then brings us yet again to a discussion of “The Box” marking the 50-62% retracements which we believe are common in bear markets. Having made its last interim inter-day high of 2941 on the 21st of September and having fallen to its interim, inter-day low of 2603 on the 29th of October, the S&P’s “Box” marking the 50-62% retracement zone has been bounded by 2772 on the low side and by 2812 on the high side. Thus, the market has only now made its way into “The Box” and It has taken perhaps the most exuberant rally of the past several years to have done so.
And the punchline:
All of this brings us to this final point: after a week and one half of what we consider to be a marked, sharp, violent bear market rally we are going on the record as stating in the most certain of terms that those who are long of equities must… absolutely must… reduce their exposure materially by selling into this strength. Secondly, we are “officially” going to recommend short sales of equities on this rally, something we’ve obviously refrained from doing thus far and something we have been correct in avoiding to date. Thirdly, we do not make this recommendation lightly, but we are making it nonetheless. It is time to sell… finally… patience having been rewarded. At the same time, we are not prepared to risk more than 1-2% on this initial test of the short side for if we’ve learned anything at all in our nearly four- and one-half decades of being in the markets it is that risking more than that sum is a loser’s game and we chose never to play upon that larger, more extreme field.
So who will be right: Kolanovic, and the balance of the newly hatched bulls who now see gridlock in Congress as bullish, or Gartman? We look forward to the answer.
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