Bear Talk Online Trading Academy Letter
Okay, so we had a very nice March through May rally. As the market has essentially oscillated in June and July, many observers have continued to portray that market in a manner to suggest that the rally has continued. While it is true that some individual stocks have continued to put up impressive gains, the reality is we’ve been in another holding pattern. The Bullheads thought that pattern was broken last week as the three major indices had explosive upside move on Thursday morning’s upbeat economic data. At the head of the cheerleading pack was Jim Cramer (of CNBC) who cocksuredly proclaimed, "Say good bye to this trading range, we’re going higher!" However, this explosive move was quick to reverse, and the market finished in the red for the week.
At this point, the bad news for the bulls is that the "DOW" has failed to break out of its consolidation range, the S&P appears to have put in a "double top," and the Nasdaq, although its price trend is still intact, shows increased signs of technical internal deterioration. One of our market indicators (sector breadth), shows that only 16% of the market sectors rose last week, while 84% declined. Our breadth and momentum indicators continue to deteriorate, our sentiment indicators are flashing "sell", and the economic indicators appear toppy.
Naïve individual investors continue to believe this rally is a big party, and if your not in, you’re missing out. We can only respond that both the large and commercial traders are "net short" with the same view on this market as us—bearish! Further, we are in a seasonally bad time for the markets in general, but add to the mix the Republican Party in office, and it gets worse. Research over the past 16 presidential cycles, by McClellan Research, shows that the market performs worse, (relative to Democrats, and the combined index of Republicans and Democrats) into the fall months of the 3 rd year of the presidential cycle.
Finally, we had warned in a previous column that you shouldn’t fall into the "bulls" bull about money flowing out of bonds and money market accounts and going right into stocks. The last couple of weeks have shown this is not happening. Bonds are falling (rates rising), and the stock market is not the recipient. The scary part of what is contributing to this sharp rise in interest rates and fall in bonds, which is not being hyped through the media, is that the Europeans are starting to dump U.S. Treasuries and Agency bonds—this is not good. If this spreads heavily into the Asian regions, look out!
Pennies not a zero sum game as much as some zero game.
