Lance Roberts

About the Author Lance Roberts

As an active portfolio manager for STA Wealth Management, Lance's primary role is to question the mainstream mantra. Rather than just regurgitating the news of the day, Lance looks at the “raw data” to bring a unique and “un-spun” perspective to the conversation. Lance's deep understanding of fundamental, technical and economic perspectives, combined with his unique focus, helps listeners understand how it impacts their family, their money and their life. "When a portfolio is fully invested, studying the reasons why the market will continue to rise is a bit pointless. As investors, we need to temper our bullish perspective with contradictory arguments to reduce 'confirmation bias.' If our job as investors is to 'buy low and sell high' we need analysis that helps us to identify those points." After having been in the investing world for more than 25 years from private banking and investment management to private and venture capital; Lance has pretty much "been there and done that" at one point or another. His common sense approach, clear explanations and “real world” experience has appealed to audiences for over a decade. Lance is also the Chief Editor of the X-Report, a weekly subscriber based-newsletter that is distributed nationwide. The newsletter covers economic, political and market topics as they relate to your money and life. He is also writes a daily blog which is read by thousands nationwide from individuals to professionals, and his opinions are frequently sought after by major media sources. Lance’s investment strategies and knowledge have been featured on CNBC, Fox Business News, Business News Network and Fox News. He has been quoted by a litany of publications from the Wall Street Journal, Reuters, Bloomberg, The New York Times, The Washington Post all the way to His writings and research have also been featured on several of the nation's biggest financial blog sites such as the Pragmatic Capitalist, Credit Writedowns, The Daily Beast, Zero Hedge and Seeking Alpha.

Return of the Bull, or Bear Trap?

The rally, driven by the highest level of short interest  since 2008, has once again ignited “bullish optimism.” As shown in the chart below, the number of stocks on “bullish buy signals” has exploded in recent weeks.


While the “bulls” are quick to point out the current rebound much resembles that of 2011, I have made notes of the differences between 2011 and 2008. The reality is the current market set up is more closely aligned with the early stages of a bear market reversal.

However, with the markets extremely oversold following the August-September declines, the rebound in the markets was not unexpected. As I have repeatedly noted over the last couple of months, these strong reflexive rallies should be used to rebalance portfolios and reduce areas of excessive risk.

With the markets currently pushing extreme short-term overbought territory and encountering a significant amount of overhead resistance, it is likely that the current reflexive rally that began four weeks ago is near its conclusion.


During the summer rout, many investors were reminded of what the term “risk” truly meant. Reflexive rallies of the magnitude witnessed as of late is a “gift” that should be used by individuals to rebalance and realign portfolios with personal risk tolerances.

(In other words, if you didn’t like what happened during August and September, it was a warning you have too much risk in your portfolio. The next time, the market will likely not be so forgiving.)

As shown below, the current sell-off, and reflexive rally, has occurred with both major market “sell signals” registered. Since the turn of the century, the combination of these technical indicators has only occurred at the onset of more meaningful corrections.


[NOTE: This is a monthly chart. Therefore, only the month-end close of the market will matter in determining what likely happens next. A failure of the market to close above the short-term moving average may suggest more corrective action to come.]

It is too early to determine whether the “bull market” has resumed. While the markets have indeed entered into the “seasonally strong period,” there are many external risks still weighing on sentiment. These keeps my statement from last week valid:

“For longer-term investors, and particularly those with a relatively short window to retirement, the downside risk still far outweighs the potential upside in the market currently. When a more constructive backdrop emerges, portfolio risk can be increased to garner actual returns rather than using the ensuing rally to make up previous losses.”

The “Fed” Effect

In a more normal market, I would already be well convinced that the bullish trend had ended, particularly against the backdrop of an earnings recession and weak economic data. But this is by no means a normal market given the ongoing interventions by the Federal Reserve to support asset prices.

This is a point I noted earlier this month.

“It is worth noting that contractions/expansions in the Fed’s balance sheet has a very high correlation with subsequent market action as liquidity is pushed into the financial system.As shown in the chart below, the Federal Reserve has already once again began to quietly expand their balance sheet following the recent downturn. Not surprisingly, the market has responded in kind with the recent push higher. My suspicion is that if such minor interventions fail to stabilize the market, a more aggressive posture could be taken.”




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