SOME CRACKS IN THE FOUNDATION?

Excellent thoughts on the market here from David Rosenberg:

• The S&P 500 is now up 76% from the March 2009 lows. This goes down as the sharpest up-move since the bungee jump in 1932-33 (no money was made in equities for another decade after this initial sharp leg up).

• The S&P 500 index has not had a three-day losing streak since mid-January. This has not happened since 1980 (the market didn’t bottom for good for another two years).

• Up days versus down days in 2010 is now at 66% — the highest ratio during any year in over 30 years.

• The ratio of NYSE volume to Nasdaq volume (sign of speculation) is surging beyond levels seen during any period in the past 10 years.

• Investors Intelligence bullishness hit 54% in the latest week — its highest level since the 2007 all-time peak in the equity averages.

But … there are at least four nonconfirmations.

First is the gold price — it is trending higher in U.S. dollar terms and surging in Euro terms and is a hedge against financial instability. Meanwhile, the stock market is trading as if we have financial nirvana on our hands.

Second is the bond market — a hedge against deflation and here we still have the 10-year T-note yield hanging around 3.7% whereas if we were truly in a wonderful refationary cycle, it should be north of 4.5% right now.

Third, the action in emerging Asian markets, which are trading below their recent highs, and especially China, which is actually now 14% below the nearby peak of late 2009 (during which the S&P 500 has risen nearly 10%).

Fourth, there are some signs of a crack in credit quality. Global corporate spreads have widened 6bps this week, to 149bps and high-yield spreads have moved out 13bps, to 569bps. U.S. CDS spreads have also risen 5bps, to 94bps. As we saw in 2000 and again in 2007, credit leads equities.

Source: Gluskin Sheff