The Mighty Gartman

Investment newsletter writer Dennis Gartman (a.k.a. “the Commodities King”) has been a target of ridicule at Zerohedge for a long time. His pompous style of writing and his uncanny ability to frequently make perfectly mistimed short term market calls have made him an easy target.* It would be quite ironic if a so far quite good recommendation he made last week were to turn into the call of a lifetime (see ZH: “Gartman: ‘We Are Officially Recommending Shorting This Rally’”).

A little collage devoted to the Commodity King. It is easy to see how he ended up being made fun of. Actually, by now he has garnered a quite sizable fan community at Zerohedge and other websites that report on his frequently ill-timed flip-flops (often announced with great conviction). However, a major call on the stock market he recently made seems to have been perfectly timed.

Anyway, we are not quite sure why he insists on predicting things, given that he is a trend-following trader. Of course, we also write about our expectations, but never in absolutes: we know the best one can possibly do is weigh probabilities to some extent, and even that is usually quite difficult (not to mention imprecise)**.

Anyway, regardless of the fun factor provided by Mr. Gartman’s eccentric prose, what we have seen of his recent missives contained actually little we would disagree with. He is quite correct in being wary of an egregiously overvalued stock market characterized by weak internals and plenty of complacency –  which is faced with an increasingly hostile monetary policy backdrop to boot.

Moreover, the question of whether the market may potentially be hit by a wave of genuine panic selling is definitely not off the table just yet. We recently pondered previous panics (see Crumbling Piles of Sand for the details) after learning of certain similarities visible on the daily charts. We now have good reason to revisit the topic.

Seasonal Trend or Panic Cycle?

Price charts are a reflection of market psychology and one should not dismiss pattern repetitions out of hand – particularly when important framework conditions characterizing previous cases are similar as well. In fact, this is the main reason for devoting time to the idea of crashes, which are otherwise extremely low probability events.

When the market jumped strongly following the mid-term elections, there was near-unanimity in the financial press on the “reason” for the rally and on what the market would do next. It went like this: for one thing, “gridlock” is good for stocks. Everybody knows this and it has been shown to be true many times in the past.

We have our doubts about that conclusion. What about the past two years? There was no gridlock, which allowed for the unimpeded implementation of tax cuts and regulatory relief. The stock market was not exactly disappointed by this situation, as is evidenced by the fact that election day 2016 was the launch pad for a rally in the DJIA from around 17,900 to 27,000 points – not exactly chicken feed.

Next, the press rediscovered seasonality. There is nothing wrong with that in principle, after all, our friend Dimitri Speck regularly reports on the topic as well in these pages. Seasonal statistics can be very helpful, but as we have frequently pointed out in recent months, all of 2018 has so far run counter to the normal mid-term seasonal pattern. Here is what the situation currently looks like: