Stock rally since Feb. 11 totally central-bank driven

Almost three months into 2016, nothing has changed. Gold is still up about 16%, although its rally has stalled around $1,260. Meanwhile, the major stock indexes like the Dow Jones and S&P 500 have clawed their way back into positive territory for the year since hitting lows around Feb. 11.

But those who think the worst is over for U.S. and global financial markets and therefore that its time to reduce gold holdings in favor of stocks could be in for a rude awakening.

Housing report tanks: The existing-home sales report for February was the latest wakeup call that the U.S. recovery remains precarious. Sales plunged 7.1% in the largest month-over-month drop since July 2010. Moreover, the National Association of Realtors delivered a somber assessment of the tapped-out American worker.

Home prices and rents outpacing wages and anxiety about the health of the economy are holding back a segment of would-be buyers, observed NARs Larry Yun.

The home-sales report was accompanied Monday by the Chicago Federal Reserves National Activity Index, which contracted back to two-year lows, while last week heavy-equipment maker Caterpillar was forced to issue sales and profit forecasts below analysts expectations.

Secret Shanghai accord at work?: These three reports help suggest that recent stock-market gains are unsupported by economic fundamentals. So whats the reason for the rebound in stocks? Renewed accommodation from central banks, thats what. Some analysts think top bankers secretly agreed at the recent G20 meeting in Shanghai to take the dollar down a couple of notches to juice markets.

To any conspiracy theorists, its all become quite clear, IG strategist Chris Weston wrote. There is a global coordinated central bank effort to weaken the [dollar] in play, which in turn has led to a massive de-risking in equity and credit markets.

Whether or not a conspiracy is the reason for the market surge, Goldman Sachs is calling the Feds unexpected slashing of its interest-rate hike pace from four to two a major dovish surprise for markets, with interest rates declining across the curve and the dollar falling against other developed market currencies.

Desperation of money printing: The Feds dovish stance followed similar moves by the European Central Bank and the Bank of Japan. This money-printing magic is whats driving stocks higher in recent weeks, argued Jeff Sica of Circle Squared.

Virtually nothing has changed with corporate earnings, he told Fox Business last week. What weve had is three major central banks launch this desperation of money printing, low interest rates, negative interest rates. So what weve seen is not only are these central banks willing to jeopardize the future economies of their respective countries, but they are willing to do just about anything to cover whatever theyre trying to cover and save this market. The problem is what theyre doing is theyre delaying the inevitable. Remember the Fed came out and they said when they were starting to raise interest rates, maybe get some sanity back; they came out and they said that raising interest rates was good for us, normalization. Now Janet Yellen comes out and [is] clearly dovish, clearly against raising interest rates. And now shes telling is that not raising interest rates is good for us. This is a very confused Fed, and when you have a confused Fed, eventually youre going to realize they dont know what theyre doing.

Fed fueled 93% of stock gains since 2008: Central banks are powering the current stock rally, and in fact the Feds trillions of dollars worth of monetary stimulus is responsible for 93% of the gains in equities since 2008, according to economist Brian Barnier, principal at ValueBridge Advisors and founder of FedDashboard.com.

And not everyone is buying this recent rally as the real deal. For one thing, volumes are thin. On rallies like this, we like to see an endorsement from money flow and from value trading and from volume, and thats one aspect of this move that falls a little bit short, Chris Verrone of Strategas Research Partners told CNBC.

Since the Feb. 11 low, average daily volume on the S&P has been about 35% less than what it was in the first four or five weeks of the year.

Not fully confident in S&P: Moreover, ETF fund flows went negative between Feb. 11 and last Friday. This is a sign that people are thinking that the U.S. markets are overbought at these levels, and moving their money to emerging markets and even gold, said Mohit Bajaj of WallachBeth Capital. People are not fully confident that the S&P is going to stay at these levels.

Moreover, a Bank of America note found that in the week ended March 11, the banks hedge fund, institutional and private clients sold $3.7 billion, the most since September and the seventh consecutive week of withdrawals, Bloomberg reported.

Meanwhile, JPMorgan analyst Marko Kolanovic also told CNBC that the rally has been the result of short covering by momentum investors and is not necessarily based on market fundamentals.

And as Mark Hulbert noted at MarketWatch, its not uncommon to see large moves higher during a bear market. Hulbert observed that since 1900, the average major bear market has featured six rallies of at least 5%.

Very little to do with fundamentals: The economic fundamentals simply arent there to sustain the equities rally long-term. The question everyone should be asking is what has really changed in the last three months? saidJohn Canally of LPL Financial Global concerns, while slightly less, are still there.

Im not buying anything;Im sitting on my hands and waiting, addedMichael Woischneck of Lampe Asset Management. I would definitely sell this rally because its totally central-bank driven and has nothing or very little to do with fundamentals.

Too much of a good thing can sometimes come with a downside,” BlackRock strategist Russ Koesterich also warned. The stage could be set for a return of volatility and another selloff.

But its this temporary renewed momentum in stocks that has slowed golds advance. Its also important to note that traditionally, the yellow metals seasonal strength ebbs slightly in March after the Lunar New Year gold-buying holiday is celebrated across China and other Asian countries in early February.

The next week of data will be key to determining where the U.S. economy is headed, with new-home sales, durable-goods orders, and GDP estimates all on tap. And with some top Fed officials still talking up the necessity of raising interest rates as soon as April or June, stocks could face a volatile road ahead if that tightening actually materializes, lifting the veneer off this dead-cat bounce of an equities rebound.