Technical Take: Digging Into Gartman's Bear Market Call

Dennis Gartman officially called a bear market on Wednesday morning.

Gartman’s technical points of view seem to be further affirmation as to how the markets have traded since July 2014. This month, as seen in the BBB and CCC spread charts, is the time in which yield bottomed. QE3 ended on October 24, 2014, so the market started to move pre-Fed tightening.

All About Shale

The most credit afflicted sector of the U.S. economy has been the shale industry during this cycle -- the Fed’s tightening has burst this bubble, which can be considered a net positive for the global economy.

Ceteris paribus, the market is starting to put a little too much emphasis on the yield spread in CCC putting in higher cycle highs, but only a strong fear reading at this point will confirm that thought. The shale industry is what’s driving the move higher, and once that's stripped out of the picture, one sees a rosier environment for high yield traders.

The Real Tell

The BBB spread isn’t putting in a higher cycle high, so one can’t say that the market is looking for a deterioration of investment grade credit at this point.
Watch for a capitulation type selloff in oil while the rest of the equity market is keyed on CCC credit. If oil fundamentals can firm up, post capitulation, then the market can firm up and make another attempt at cycle highs.

BBB spreads and volatility readings is where the real tell will be over the near term.