Expect sustainable surge in global mkts: Richard Ross

Richard Ross, global technical analyst with Auerbach Grayson, believes that the current gains in financial markets are just the beginning of what is going to be a sustainable surge.

In an interview to CNBC-TV18, Ross explains that when sentiment becomes as bearish as it has been the past few months, it doesn’t take much to spark a move in the opposite direction. “We think today’s gains are just the beginning of a very sustainable surge, not just in the US, but on a global basis,” he said. His view, however, is not based only on fundamental triggers. He believes the catalyst could be both fundamental and technical in nature. “We think this is just normal corrective behaviour to the painful correction down to that 1,285 level on the S&P, and now we are ready to resume that bull trend in earnest,” he said. He goes on to say that markets have already priced in key events lined up, such as elections in the eurozone, the Federal Reserve meeting and also hopes of a third round of quantitative easing. Below is an edited transcript of his interview with Menaka Doshi. Also watch the accompanying video. Q: No European Central Bank (ECB) action yet, so what explains the solid gains that we have seen? A: When sentiment becomes as pervasively bearish on a global scale as we have seen over the past few weeks and months, a textbook 10% correction here in the US, bear market decline in major emerging markets like Brazil, Russia and China, it doesn’t take much of a spark to get you go in the opposite direction. We had that false breakdown below the 200 day moving average (DMA) last week, and now we are reacting sharply in the opposite direction as we got a lot of people leaning in the wrong direction at the tail end of that move. We think today’s gains are just the beginning of a very sustainable surge, not just in the US, but on a global basis. Q: But on what fundamental grounds are you saying that? Are you amongst those that expects a third round of quantitative easing (QE)? A: In some way, shape or form, we do see additional easing. But let us remember it was only six weeks ago we were talking about the strength of the US economy. So I don’t think we had the fundamental catalyst that brought us down to where we were today. I think it is typical ebb and flow of trading a market that needed a correction after the surge that we have from last October’s lows into the March highs. That was a six months bull market from those lows; it took us from 1,100 in the S&P up to over 1,400. So we think this is just normal corrective behaviour to the painful correction down to that 1,285 level or so, and now we are ready to resume that bull trend in earnest. Q: You seem to be shrugging off the Greek re-election that takes place later this month, the Spanish banking problem and the lack of any responses yet from the ECB. How do you expect the markets to behave let us say between now and the Greek reelection, are they going to be as sanguine as you are? A: It is not that I am shrugging it off because the market hasn’t shrugged it off. I view it as the prices discount the fundamentals. So we have had this correction which reflects the uncertainty in the macro backdrop, we have already had these declines. Yes, we do have potential data point outs there like the French elections, the Greek elections, the Fed meeting, ECB meeting etc, so there are still a lot out there. I am not going to completely dismiss that, but I think a lot of that is in stocks at this point to a certain degree that is why we have come down to the levels that we are at right now. Q: Are you saying this market was oversold and therefore is recovering or you saying that you expect fundamentally good triggers over the course of the next few months that might help prop up these markets? A: I think it's a combination of both and that's a great point. I think we have the potential for both fundamental and technical catalyst. In the short-term, we did have a market that was deeply oversold, not just equities but commodities as well. Crude oil reached the most oversold levels in over 20 years, a precipitous decline, a bear market in just the month of May alone down 25% from the peak that we set in March. So we have a market that have had these cyclical bear market declines in a very short period of time, dramatically oversold conditions, grim economic headlines out of Europe, so I don’t think it will take very much. Remember this is a game of expectations; those expectations are still low right now that we could fall over those expectations just by getting out of bed in the morning. So it wouldn’t take much to get us going.