Courtesy of Joshua Brown, The Reformed Broker
Barron’s magazine this weekend is an absolute mess to read. I can see how the average investor seeking to educate themselves would pick up this issue and want to just blow his brains out.
It is loaded with bullish strategists and articles repeating the same metric over and over again about how cheap stocks are – seriously, how many times can we hear about the S&P’s earnings yield being higher than the 10-year Treasury rate. We get it, we get it, keep banking on those 2012 profit estimates you think are etched in stone.
Anyway, cutting through the noise is this week’s Getting Technical column by chartist Michael Kahn. The main thrust of his piece is that forget about the last two Septembers, this one looks poised to deliver the usual bad news and that the market is obviously a different one than what we’ve grown accustomed to.
Here’s the money quote:
Nuts-and-bolts technical analysis shows the 2009-2011 bull market is over. Using a tool as simple as a trendline, the line drawn from the March 2009 low was undeniably broken to the downside on Aug. 2 (see Chart). And while the past week has been good for investors, the footprints it left on the charts suggest that it was an upside correction and not an upside reversal. The pattern formed since the Aug. 9 low — a "rising wedge" — was accompanied by contracting volume, which tells us that this rally is not attracting more and more buyers.
So yeah, we retraced 50% of the August crash headed into Friday and the usual momentum cohort was back to its regularly scheduled gymnastics routine…until we hit Friday and the August Jobs numbers. Reality. And, well, you know the rest.
That buy-the-dip conditioning you picked up has ceased working. And while by many important metrics, yes, stocks are "cheap", that doesn’t change the cruel reality of our darkening picture and broken supply-demand situation as evinced by the charts themselves.