As this thin ice-sheet of a market a.k.a. the mega-9 rally continues to grind higher with anemic volume and spiked with reversals and distribution, more and more talking heads and industry “experts” are coming out of the woodwork, finally convinced that the worst is behind us.
Bank of America’s leading strategist, Savita Subramanian, announced in a message to clients that “The bear market is officially over”. The bull “has legs”, apparently – because it moved 20% off the October Lows. FOMO is coming in hard.
Sometimes I deeply wonder how these people justify their wage, or why their superiors hired them in the first place. Her statement follows the popular adage that technically a 20% rally indicates the start of a bull market, and 20% decline the start of a bear. Why do we care? And where does this number come from?
I can tell you – it’s arbitrary. There is no justification for the 20%, not more than there is for using 7% or 33% … except that the 20% number best fit someone’s data massaging & backtesting to make a catchy-sounding media statement backed by “their models”. This 20%-idiocy is to me as nonsensical as believing that you are very close to becoming a millionaire just because you just found 20 bucks lying on the road. You start daydreaming about yachts, mansions, and caviar-filled swimming pools – because if there are 20 bucks here, statistically there must be 20 bucks more a few steps down, and so on, because apparently a millionaire with a hole in their pocket must be walking around town dropping his fortune piece by piece in your hands.
Does this make any sense? I’ve written previously about how such arbitrary %-thresholds do not actually mean anything in reality, though I am left to wonder how the financial media and their “experts” actually persevere in cooking up these ideas. Markets can rally any percentage over some time-frame – the question is rather, why should this make it a bull market? Is a bull market a market where 2% of the S&P500 stocks grind up, while the other 98% are actually down, and the rest of the market is chopping in a range like a squirrel on caffeine?
Savita optimistically offers that the S&P500 “returned 19% on average in the 12 months immediately following a 20% rally from a bottom”. That reminds me of the story of the guy standing with a leg each in a bucket of freezing and boiling water, and saying on average it’s luke-warm. Sure, on average this might be the case, but one leg is freezing and one burning off. Savita talks about all the times the S&P500 has rallied 20% off a bottom since 1950, and then averages the result in to a number. But in reality, the rally could still roll over … the leg could freeze off, so to say.
Even if I believed a statistical approach to predicting the markets was anything else but supportive secondary information, even then the average is not an insightful measure because it gives us a coarse merged picture, ignoring that many times the market returned much less than the 19% and quite often even posted negative returns after such a 20% bounce. Plus, you have no idea what happens between now and 12 months from now – a 30% dive and then a 70% rally? In statistics, when you post a measure of average, you always need to give a measure of uncertainty or variance that you can expect (or simply, what people mean when they use “±”). I don’t have the data that Savita refers to, but I bet there is a rather large ±% behind this 19%.
However … I don’t believe statistics are very helpful here in the first place – the stock market lives on the speculative endeavors of large money interests, and my charts show me clearly that systematic accumulation of high-quality stock is absent. In fact, often I see the opposite. Charts are truth, because charts reflect psychology.
Some rallying mega-caps, now safe havens for fund money rotation and old-news bets on AI by the amateur crowd is no gunpowder for a true bull market. Sure, the popular indices of SPX, NASDAQ-Composite and NASDAQ-100 (with sometimes almost a third of their movement determined by these 9 mega-caps), may rally on perhaps even to new all-time price Highs under this ridiculous breadth – there is precedent. But there is no opportunity in buying indices, only in elite stocks – and there are no tradable ones out there, not now, and not in precedent.
There’s gambling, and there’s speculation – right now, it’s definitely not speculation time.
