March Madness might reasonably describe the bullish rationales that predominate market behavior currently aside any day we get an actual S&P 500 (SPX) decline like Tuesday’s projected likely faltering morning rally and then failing midday recovery effort, says Gene Inger of  The Inger Letter.

Even now they’ll say it’s just another dip and ignore possibilities the market is running out of fuel, as well as encountering turbulence.

They’ll reference the extended value levels or concentrated gains led by only a small portion of leading stocks as irrelevant, rather than point to a dearth of breadth or precedent being set not only by the (very logical) denial of the Broadcom/Qualcomm deal, but by Tuesday’s news of greater restrictions aimed at China.

For now, downside follow-through Wednesday and a hail Mary rally follows.

chart 1

Certainly, the concerns are real. The Spring rally has been ragged as I have anticipated. That’s because we were very keen both with projecting (in late January) an early February break. And when we got down to the March S&P double-bottom at the 200-day moving average.

I saw it worthy of a long-side trade ideally up to S&P 2750 and maybe 2800 if they pressed it.

But we did not suggest long-term investors add positions unless it was in a handful of low-multiple value stocks, because we thought the rebound was just that, not more. It was dicey (as part of the Spring rally) and clearly remains at risk.

Capital flow risks emerge

I’ve explored this repeatedly in recent weeks but highlight the challenge that exists now. As I outlined in New York two weeks ago as well: there’s a dearth of new retirement (seasonal reinvestment) funds and a potential of a choking-off of foreign funds (both from OPEC countries as petrodollar recycling) dries up. (The U.S. becomes, thankfully, self-sufficient.)

And of course, the essential confrontation regarding trade and tariffs, which is unpleasant but essentially the core basis for any support of Trump. So, I admire his tenacity, know we require many of the policies, but foreseeing this way back in 2016, I saw no reason to chase stocks in 2018.

chart 2

That’s macro. More recently, although we had a projected structured technically-based trading low over a month ago, and noted the ensuing automatic rally was all occurring at very high levels. Thus, it would occur but be suspicious in terms of durability from the outset. That’s why you frequently saw earnings upgrades for already-expensive FANG or other leading stocks.

They knew rotation alone wasn’t going to perpetuate the move (though it helps). Hence, concentration remained in the handful of stocks that dominated the preceding thrust. 

Some are being crushed. I could not have been more earnest in calmly saying these are not levels at which any of those stocks were realistic buys even if they went higher.

I enjoyed my opening statement at TradersExpo in New York, where I said: “I just hope the market holds together long enough for me to warn guests it barely has, so now look out below.”

Yes, it dropped, came back to slightly higher highs with no oomph and here we are, as traders nervously eye what I said was a stretched market. 

Subscribe to The Inger Letter here