After years of steadily upward grinding markets, we have suddenly seen three stock market shakeouts of more than 10% over the past six months.

The Volatility Index (VIX) has spiked over $50 once and $30 on three separate occasions during the same time period.

What gives?

Is the bull market over? Is it time to don your hard hat and hide out in a bunker? Should we start stockpiling canned food, water, and ammo once again?

Hardly.

Those of us who have been around for a handful of decades have seen all this before. After several years, markets just get tired of going up.

Traders look at their S&P 500 (SPX) charts and think, ?holy moly, the index has just tripled off its $667 bottom! SELL!?

Investors look at their charts and think ?Wow, markets have been going up for seven years now! Isn?t this where a recession usually kicks in? SELL!?

In fact, markets can go down for no other reason than they have been going up for too long, earnings be damned. The bear market becomes a self-fulfilling prophecy.

The problem is that these days, high frequency traders, complex derivatives enabling massive leverage, the rise of ETF?s, the disappearance of intermediaries, and scaredy cat day traders put a turbocharger on every single move.

However, this year we seem to have more than the usual numbers of things to worry about.

I will list them in order of importance. Caution: you may not have heard of several of these.

1) The retirement of 85 million baby boomers is still the biggest drag on risk assets everywhere. Retirement brings a shift in investment preferences away from equities and towards fixed income, and a major downsizing of consumption. They are a huge drag on the economy. This will continue for six more years.

2) The Federal Reserve?s monetary policy of quantitative easing gave us all free money to buy everything, especially stocks. Since it ended in October, 2014 stocks have flat lined within a broad range. Expect this to continue until the next real recession, which could be years off.

3) The hangover of the 2008 crash is still with us. People are so nervous about a return of the bad old days that they are saving more than usual. This is why consumers aren?t spending their gas savings. It?s also why the housing recovery got such a late start. An entire generation of Millennials has deferred family formation and consumption by about five years. Many people will NEVER buy stocks again, similar to what their ancestors did after the 1929 crash.

4) America is almost alone around the world with a reasonably growing economy. The rest of the planet, including Europe, Japan, China, the Middle East, and emerging nations, are all suffering from a slowdown. This acts as a big drag on the US economy, as the demand for our exports shrink.

5) Since this is an election year, some $8 billion will be spent to convince you how terrible economic conditions are. Never mind that the claims are largely false. This IS having a negative effect on investor sentiment. When this onslaught runs out of money in the fall, expect to start hearing about the ?Clinton Rally? that will take stocks to new all time highs. You heard it here first. Oh, and by the way, Donald Trump scares the living daylights out of the entire business and investment community.

6) Have you noticed that sub $2.00 gas at the pump lately? Well, the people who sell us the oil that made that gas don?t have as much money as they used to. How much money? Oh, about $1 trillion. And what do they have to sell to cover their newfound deficits? US stocks, especially bank and technology shares, and of course Apple (AAPL).

7) OK, so you?re one of those people who absolutely HAS to have something to worry about. There is a catch all category of Syria/ISIS/Iran/Libya/Yemen/Somalia that will keep you awake at night and out of the stock market. As a person who is in near weekly contact with the Joint Chiefs of Staff, I can assure you that the existential threat to the US from this source is zero. Blame it all on the failure of the Ottoman Empire to reform during the 19^th century.

8) Want more reasons to toss and turn at night? You could obsess about the rise of China and a newly aggressive Russia. But do you really think one of these countries is inclined to blow up their largest source of earnings and technology? I don?t think so.

9) A giant asteroid will destroy the earth. Don?t worry, the next big one isn?t due until 2032, by which time I will be retired, and entirely in cash.

Last Night at 8,000 Feet

I always encourage readers to send in questions.

My late mentor, CIA chief William Colby, taught me that questions are always more valuable than answers. Knowing what the enemy doesn?t know is more useful that knowing what they do know.

And this is from a guy who organized the French resistance during WWII, so he should know.

So when a follower asked yesterday what to do with our remaining position in the S&P 500 (SPY) April $182 puts, I leapt on him like a mountain lion.

The short answer is that you keep them, and I?ll tell you why.

The answer is to be found in two words:

IRON ORE

Let me tell you about iron ore. It rusts, and once you get it under your fingernails, you never get it out.

Yesterday, iron ore rocketed by 20%. Iron ore never rockets by 20%. A big daily move for the rusty metal is usually 1%. To see a 20% move means that something weird is going on.

It wasn?t just iron ore.

Look at the recent charts for oil (USO), copper (CU), gold (GLD), gold miners (GDX), silver (SLV), silver miners (SIL), the commodity currencies of the Aussie and the Loonie (FXA), (FXC), and they are all virtually identical.

They show a classic inverse head and shoulders bottom followed by a parabolic move to the upside.

You may recall that in my 2016 Annual Asset Class Review I predicted that energy would be the top performing sector of 2016 (click here).

Gosh! I hate being so right.

However, there is a problem with this picture. Some 100% of this frenetic buying has been short covering.

And therein lies the problem.

Short coverers can?t create new bull markets. Once they buy back the securities they bet were going down, they tend to sit on their hands.

That is only enough buying to move the indexes back up to the top of the recent ranges AND NO MORE. There is not enough money to blast prices to new all time highs.

For that you need substantially improving corporate earnings. What we HAVE are flat to modestly growing earnings instead. This is NOT what bull markets are made of.

Let me give you another reason why this is a rally you do NOT want to take home and introduce to your mother.

Take a look at the chart below for the Dow Average, which I fudged from my friend, Dennis Gartman?s, newsletter and you will see that every rally for the past six months has taken place in the face of falling volume.

Now, back to Trading 101.

Rallies that succeed and breakout to the upside do so on rising volume. Rallies that fail and breakdown to new lows do so on falling volume. That?s the kind of rally we have just seen: the bad kind.

Bad rally! Bad rally!

Not only that, every rally we have seen across all asset classes has been the bad kind, except for gold.

That means this rally will fail as well. It?s just a matter of time. I expect we will churn around here for a bit, sucking in the last few remaining short positions.

Then, when there are no more shorts left, it?s time to take the downtown express one more time.

There is a happy ending to this story. I don?t think we are going to new lows this time around. At the very most we will give up one third to one half of the recent move up, or $7 to $20 S&P 500 (SPY) points.

That will set up a tortuous, mind numbing, hair tearing six-month sideways wedge of higher lows and lower highs in the major stock indexes. Like the victim of a Mike Tyson punch, volatility (VIX) will fall and stay down.

Then in August, investors will start to figure out that Hillary Clinton is going the win the presidential election.

What happened the last time a Clinton took over the White House? The Dow Average rose 400% in the following eight years. Remember Dow 10,000 by 2,000? That was them.

And you know what? We will get the same kind of stock performance in the next eight years. At least this is how investors will perceive the opportunity.

All of this is a very long-winded way of explaining why I sold short the Russell 2000 today, at least through April.

In falling markets you want to be short small caps. They get much more beaten up during economic slowdowns, don?t have access to new equity or banks loans, and suffer from poor liquidity.

Just thought you?d like to know.

Time to Bring in the Big Guns