Sell The Rallies Is Taking Hold
FRIDAY AM: Dow set for triple-digit drop as oil breaks under $30 overnight.
The risk-reward for equities has worsened materially. In contrast to the past 7 years, the regime has transitioned to one of selling any rally.
The fact that market volatility is on the rise and the Fed is raising interest rates further increases the probability of a Bear Market.
The current under performance of Oil to the S&P 500 is not just one of the largest on the record, but is by far the longest one. Given that divergences of this size closed in 10 out of 10 historical instances, we believe a closing of this gap is very likely with the S&P playing catch down to the price of oil. SEE CHART BELOW.
Clearly, equities are unlikely to keep falling in a straight line, with periodic rebounds likely. However, we believe that one should be using any bounces as selling opportunities. We have a long way to fall.