Bank of America: Risk of Sell-off is High
Here are some interesting thoughts from B of A. The real question is – is this just more bricks in the wall of worry or is this market actually becoming susceptible to some downside? Via Business Insider:
“Risk of a sell-off is high
Economist Michael Hanson points out an interesting circular relationship between the stock market and Fed policy. There are some who believe the Fed will not launch QE3 so long as stock prices remain high, yet the stock market is high because it anticipates QE3. Should the Fed disappoint at the September 12-13 FOMC meeting, the risk of a stock sell-off is high. S&P 500 support on a correction is in the 1360-1325 area. Additional support is at 1300-1250. Attention will be on the Jackson Hole symposium next week to get a feel for the Fed’s tone.
Macro catalysts increase the risk of a correction
Our strategists see an unusually high number of macro catalysts over the next 3-6 months that could take markets lower. We expect economic growth to disappoint in the second half of the year in anticipation of the fiscal cliff. This would exacerbate any slowdown from the deepening recession in Europe and decelerating growth in emerging markets. There is also the ongoing tension in the Middle East, the potential for a US credit downgrade and accelerating downward analyst estimate revisions. To top it off, September is seasonally the weakest month of the year for stock price returns.”
Source: Bank of America
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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7 Comments
Price watchers say higher, while contrarians take cover….
No one wants to be short in front of the Jackson Hole meeting. 2010 memories are still with us.
“2010 memories are still with us.”
Thus it’s baked in the cake. It’s like having a re-run of the Lehman weekend with all investors knowing what will happen if the gov’t let’s Lehman go bankrupt – if the market had known the Lehman consequences, it would not have traded above 1200 prior to…likewise, EVERYONE knows what QE does to stock price pscyhology, thus the market has anticipated it.
That said, I think an open-ended QE program until GDP returns to 4% growth would “surprise” the market.
If a strong QE3 is such a sure thing, then why can’t the SPX get over the 1419 April high? It has now been 7 or 8 trading days since the SPX has hit a proverbial wall. This tells me that the big money folks are not so sure that we will get “strong” easing. I think it is more likely to be just a bit more of the same, so hence it could disappoint. Ben has a major “encore problem”.
I just looked at one indicator: percent of companies above their 150 DMA. At the April high about 90% of the companies were above 150 MA. In August the market went even higher but only 72% of the companies are above their 150 DMA. This is a sign of deteriorating internal strength. It is only one indicator though. One needs to look also at Advance/Decline, volume dynamics, sector rotations, etc.
How can anyone take anything seriously from Bank of America?
Who was it that bought Country Wide AND Merrill at absolutely the worst time possible?
Yes, economist Michael Hanson really screwed the pooch by green-lighting those acquisitions…