Beware of this rally. My work suggests that oversold tactical bounces like we experienced this week should be faded, not bought. I don’t think we are in “hide under your desk” markets either. However, based on research it is tough for me to envision a scenario where equities have a sustained upward move during a downward revision cycle, which my key indicators are signaling is still only in beginning stages. My next downside target range of 3600-3500 that I’ve been talking about is still very much in play. Given the coming revision cuts and other evidence that is mounting, I’m also beginning to wonder if there could be even more downside to my base case. Going back to 1990, there has been zero precedent for the equity markets to put in THE bottom before my proprietary earnings revision model has positively inflected.  Said in another way, when my ASM line is below zero, falling negative S&P 500 returns have always followed.  Hence, will it be different this time? Or just another confirmation of the historical precedent? 

My research still strongly points to cyclical areas of the market being the most at risk going forward as fears of economic deceleration increases. While my next downside target is only a little over 5% down from current levels, m...

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