Rosenberg: The Market is as Overpriced as it Was Heading Into the October 1987 Crash

In this morning’s ‘Breakfast with Dave’, Rosenberg is out with another bearish piece on equities. He argues that the bear market rally of last year was primarily rooted in technicals rather than in fundamentals. According to Rosie, this technically-driven market is 25 % overvalued and the S&P can easily print 912.

Gluskin Sheff: “This is a stock market that is as overpriced as it was heading into the October 1987 crash and as the case back then, it wasn’t about the fundamentals but about policy discord between the U.S., Japan and Germany.  A market priced for perfection requires perfection on all fronts.

The comments on Fast Money were that the fundamentals hadn’t changed —
this selloff is pure emotion.  Really?  We had a 70% rally from the March low in
advance of any serious turn in the economic data — this was purely a bear market rally that was rooted in the technicals (and short coverings).  How do we know?  Because at the January 19 high in the S&P 500 of 1150 it had completed a 50% retracement off the slide from the October 2007 highs to the March 2009 trough.

Now, since this is a technically-driven market, we are bound to get a 50% reversal of the bear market rally, which would take us to 912 on the S&P 500 — so keep your seatbelts on.  We had been warning for a while that too much complacency had set in, and what happens when the market shoots up 70% without taking any serious break along the way?  Investors tend to believe that we are into some sustainable new parabolic bull run.

Meanwhile, its seems that Mr. Market had already started to top out back in
mid-September, yet so many pundits still believed we were still in the throes of a bull phase market even though a vivid topping formation was becoming increasingly evident.  How about that slide in bond yields yesterday?  In the realm of technical analysis, a break towards 3.2% on the U.S. 10-year Treasury note yield cannot be ruled out over the near-term.”

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