May 5, 2011 – Why I Am Selling the Market Here

Featured Trades: (WHY I'M SELLING THE MARKET),
(SPY), (SPX), (SDS), (TLT), (DIG), (FXE), (UUP), (GLD), (SLV)

 

2) Why I Am Selling the Market Here. I have started batting out short positions as fast as the market can field them. To be more specific, I am buying puts and selling calls on the S&P 500 (SPX), loading the boat with the double short ETF (SDS), and unloading other asset classes as well.

I get asked more questions about market timing than anything else. Why here? Why now? Let me give you a list of reasons I picked this particular week to hit the sell button. You will find a minestrone soup of fundamental and technical reasons. I try to use every tool in the bag when making a call like this.

*The collapse of silver. The white metal has morphed into a great leading indicator of global risk taking as a whole. The $7 plunge in London on Sunday night was all I needed to sell.

*Good news was having a declining positive influence on prices.

Hey, Where's My Rally?

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*The calendar. Tech earnings lead every earnings season, starting it off with a bang, and the global consumers get to speak first in this process. The excitement trails off after that.

The Fireworks are Over for the Earnings Season

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*The calendar. The first day of the month was always up big, as monthly allocations hit the market. When it wasn't on May 2, the red light started flashing.

*The calendar. Sell in May and go away. It is not more complicated than that.

*PE multiples, at 15, are in the middle of their historic range of 10-20, but at the top of what I believe is their future range of 10-16, with US GDP growth at 2.0%.

*All 'RISK ON' asset classes, from the euro (FXE), to gold (GLD), silver (SLV), oil (DIG), and bonds (TLT) have been moving in complete lockstep to the upside. This has only happened a handful of times in the last century and always ends in tears. When everything rolled over in unison this week they were begging me to sell.

*Correlation among asset classes is now at an all-time high.

*Investor sentiment was reaching extremes, with 54.9% bullish and only 16.5% bearish, saying that the market could only go down from here, as all the buyers are already in.

*Every big hedge fund manager I know has been scaling back positions since February, many cutting back positions to a few million dollars on the desks to keep the kids from getting bored.

*The Q1 GDP was a shocker, from 3.1% to 1.8%

Q1 GDP Was a Shocker

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Weekly jobless claims have suddenly started to worsen.

*The put/call ratio has gone through the roof, hitting 2.0, as portfolio managers start piling on downside protection.

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Everyone is Now Rushing for Downside Protection

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*The reallocation out of risky sectors, like technology and energy, and into safe ones, like health care and consumer staples, could not have been more clear.

*Listen to Dr. Copper. He was shouting at us that the markets peaked in February.

*A number of technical programs I follow started spitting out sell signals on Monday. At a minimum, we will hit the 50 day moving average for the (SPX) 40 points lower at 1,320.

When stocks and bonds give conflicting signals, it is usually the bond market that is right. Recently stocks have been going up, meaning the economy is great, while rising bonds have been signaling a weak economy. The global bond market is ten times larger than the US stock market, meaning they have far greater resources to pour into research and analytics. Sell stocks.

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