Market Commentary

Despite some early selling, the Bears were not committed their positions – and prices held up well again last week. Going into the long Memorial Day weekend, it didn't make much sense for Bears to press their bets without a selling catalyst.

Still, the mood seems 'gloomy'. 

The S&P 500 is down less than 3% from its recent closing high.  Nevertheless, based on the latest sentiment figures from the American Association of Individual Investors (AAII), you would think a lot more damage had been done.  Bespoke reports that Bullish Sentiment is at its lowest level since August 2010, and a far cry from the 60%+ levels we saw as recently as February. 

If you have contrarian instincts, you've got to be bullish right now.  Remember, a few bulls is enough to push things higher if there are even fewer bears willing to press their bets.

A Public Service Reminder From the Bear's Den.

Of course, not everyone is a contrarian.  Some see smoke and warn of fire. 

With that in mind, here is a list of the 7 major risks David Rosenberg sees brewing:

1. China hard landing (PMI down to 51, perilously close to contraction mode)…equity market may have begun to price in some probability of such.
2. Contagion sovereign credit risks in Europe (the rating agencies have already begun to take action against Spain, Italy and Belgium).
3. Countertrend rally in the US dollar – this is crushing the risk-on carry trades: the unwinding of net speculative short positions in the dollar and long positions in the Euro seem to have further to go based on the latest CFTC data.
4. Deepening recession in Japan – still one of the world’s largest economies; spill-over on global production schedules still to be felt.
5. US fiscal policy is becoming more radically austere at all levels of government.
6. The end of QE2 will be a very big deal given the 89% correlation between the Fed’s balance sheet and the movements in the S&P 500 over the past two years.
7. US leading economic indicators are rolling over.  The Conference Board Index fell in April for the first time since June 2010; the coincident-to-lagging indicator is down three months in a row; and the ECRI smoothed index is down now for four straight weeks, a streak last seen in July 2010.

Source: Gluskin Sheff (with a hat tip to Pragmatic Capitalism)

Despite some early selling, the Bears were not committed their positions – and prices held up well again last week. Going into the long Memorial Day weekend, it didn't make much sense for Bears to press their bets without a selling catalyst.

Still, the mood seems 'gloomy'. 

The S&P 500 is down less than 3% from its recent closing high.  Nevertheless, based on the latest sentiment figures from the American Association of Individual Investors (AAII), you would think a lot more damage had been done.  Bespoke reports that Bullish Sentiment is at its lowest level since August 2010, and a far cry from the 60%+ levels we saw as recently as February. 

If you have contrarian instincts, you've got to be bullish right now.  Remember, a few bulls is enough to push things higher if there are even fewer bears willing to press their bets.

A Public Service Reminder From the Bear's Den.

Of course, not everyone is a contrarian.  Some see smoke and warn of fire. 

With that in mind, here is a list of the 7 major risks David Rosenberg sees brewing:

1. China hard landing (PMI down to 51, perilously close to contraction mode)…equity market may have begun to price in some probability of such.
2. Contagion sovereign credit risks in Europe (the rating agencies have already begun to take action against Spain, Italy and Belgium).
3. Countertrend rally in the US dollar – this is crushing the risk-on carry trades: the unwinding of net speculative short positions in the dollar and long positions in the Euro seem to have further to go based on the latest CFTC data.
4. Deepening recession in Japan – still one of the world’s largest economies; spill-over on global production schedules still to be felt.
5. US fiscal policy is becoming more radically austere at all levels of government.
6. The end of QE2 will be a very big deal given the 89% correlation between the Fed’s balance sheet and the movements in the S&P 500 over the past two years.
7. US leading economic indicators are rolling over.  The Conference Board Index fell in April for the first time since June 2010; the coincident-to-lagging indicator is down three months in a row; and the ECRI smoothed index is down now for four straight weeks, a streak last seen in July 2010.

Source: Gluskin Sheff (with a hat tip to Pragmatic Capitalism)