Six (At Least) Reasons to Sell This Rally

Includes: GS, SDS, SPY
by: Tsachy Mishal

Regardless if one believes that this is a bear market rally or a new bull market, a correction seems forthcoming. For the past six weeks the market has only had brief pullbacks that lasted one to two days. The S&P 500 now sits approximately 30% off its lows and has not taken a breather. There is a long list of evidence pointing to a correction beginning this week.

  • The 30 Day Moving Average of the NYSE Advance Decline Line will be maximum overbought by the end of the day Tuesday. This is an intermediate term indicator. Peaks in this indicator usually come close to market peaks.
  • Insider selling has picked up steam in the past week. This will likely continue as companies report earnings and lockup periods end.
  • There was approximately $9 billion in new stock issued in the past week led by the "smartest guys", Goldman Sachs (NYSE:GS). There is no reason to believe the issuance will stop. Do you want to take the other side of their trade?
  • Sentiment surveys are showing that bullish sentiment is high. The Investors' Intelligence bulls are at their highest since June 2008. After this week's rally the numbers will likely be even higher.
  • Options expiration often helps perpetuate rallies. Now that expiration is in the rear view mirror this clears the way for a decline.
  • This rally will be six weeks old (30 trading days) this Tuesday. The November rally lasted exactly six weeks.

Disclosure: Short SPY