Six (At Least) Reasons to Sell This Rally

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 (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

Comments

[kelm:]

Conventional wisdom would say you are correct however, every trader on the planet is looking at the rising wedge of the S&P and preparing to short it. It seems odd that so easy a trade would come true for so many. The head of the NYSE says this is a trader's rally and the funds are not yet in...but State Street came out and contradicted him. I do not believe this is a new bull market yet but I think there are surprises in-store for us before we get the inevitable correction or worse.

Apr 20 08:45 AM

[AndrewBaker:]

BofA brags about making money and warns on credit at the same time. It's now bigger in mortgages as well. If that credit warning is not telling us to expect far worse to come next quarter and afterwards too, then I do not know what more they can corporately say other than go the whole hog and tell us the truth of how really bad it is. Wanna make a bet on that happening?

Apr 20 10:03 AM

[ain't no fo...:]

That was a good list of reasons, including several that never get mentioned very frequently. Thanks.

Apr 20 10:16 AM

[gordon:]

As one of the few guests on CNBC (in months? years?)said premarket, earnings down 30%, market up 30% from low...

Apr 20 11:01 AM

[joes:]

Earnings are down 30%, but the market is still down more than that, is the bear over? By definition yes it is, but if companies don't come to grips with the creative destruction of several business models, auto, media and housing being the largest and most obvious.

Obama is trying to get people thinking about business off of wall street and back to remembering that the US remains the largest manufacturer in the world, mostly of high margin products. Sending students to engineering school instead of business school is the shift that we need.

Apr 20 12:30 PM

[Rob Viglione:]

You are absolutely right on the need to divert capital resources from finance to manufacturing. This is particularly true for human resources; however, the social engineering should come organically as a response to incentives aligned to economic reality, not from political manipulation.


On Apr 20 12:30 PM joes wrote:

> Earnings are down 30%, but the market is still down more than that,
> is the bear over? By definition yes it is, but if companies don't
> come to grips with the creative destruction of several business models,
> auto, media and housing being the largest and most obvious.
>
> Obama is trying to get people thinking about business off of wall
> street and back to remembering that the US remains the largest manufacturer
> in the world, mostly of high margin products. Sending students to
> engineering school instead of business school is the shift that we
> need.

Apr 20 12:46 PM

[Jasper M:]

Yes, Cetin, DO lecture us on intellectual laziness! You credentials in this area are peerless.

Apr 20 12:54 PM

[sunbakd1:]

Hedge Fund/Institutional buying and short covering rally. Dow 7400 by Friday. Investors who got out early are still on the sidelines waiting for compelling signs to jump back in. We have all been fooled before on bear market rallies.

Apr 20 03:01 PM

[DonFurio:]

I have no idea what the market will do in the short term. I'm not a trader and don't try to be. If you are and you can successfully navigate both sides of the trade effectively, more power to you. I just know that by putting money into stocks, especially ones with dividends over 4% that are not in danger of being cut, I will have a nice return in 3-6 years and I am being paid a dividend while I wait. I wish the author would put a timeline on his prediction. Does he mean 1 week, 1 month or 1 year for his prediction? I know that technicals are popular right now, but the charts don’t tell you everything and neither does option buying. Remember a month ago when people were loading up on the GE 2.50 June puts, they are now trading at 2 cents? My advice to everyone is to find a strategy that works for you, considering your risk allowance and goals. I like my odds, but if you prefer to constantly move in and out of levered long and short etfs, go for it, but don’t whine if you time it wrong..

Apr 20 05:15 PM

[Dr. O:]

The rally off the March lows is a bear market rally until proven otherwise: improved volume, improved technicals, improved economic context, improved credit conditions.

A decrease in the rate of deterioration is not enough; we need some actual stabilization. The March rally INTO earnings off of oversold conditions is a classic trading rally, IMHO.

Apr 20 07:56 PM

[SW Richmond:]

If Goldman timed their issue for now, then this is almost certainly a turn.

Apr 20 08:13 PM

[rockingandr...:]

Obama???? He is a dope...no experiance with the economy...his experiance consists of socializing with idiots and terrorists.....period. He has pulled the wool over your eyes and many others....this clown will hurt the market and ruin the economy while pursuing his misguided socialistic goals...and all the idiots that believed in change will get change - but it will not be good.....this market goes to hell with Obama...keep watching....down...dow...

On Apr 20 12:30 PM joes wrote:

> Earnings are down 30%, but the market is still down more than that,
> is the bear over? By definition yes it is, but if companies don't
> come to grips with the creative destruction of several business models,
> auto, media and housing being the largest and most obvious.
>
> Obama is trying to get people thinking about business off of wall
> street and back to remembering that the US remains the largest manufacturer
> in the world, mostly of high margin products. Sending students to
> engineering school instead of business school is the shift that we
> need.

Apr 20 10:03 PM

[LJR:]

Obama doesn't need to be an expert since he has others to advise. He is trying to make the best of a very bad situation. He is a lot brighter than most.

Apr 20 10:12 PM

[Old Trader:]

Or maybe its because of the various authors' familiarity with PowerPoint and the use of "bullet points"? It DOES make for a clear, consise readable format.

I'd be leery of accusing others of "intellectual laziness", if I were in your place, since your comments seem to mainly consist of trotting the same, consistant, bullish platitiudes, with little, if any, supporting figures/documentation.


On Apr 20 08:07 AM Cetin Hakimoglu wrote:

> I've noticed an increasing trend of articles that the lists instead
> of summaries, which I deem to be a possible sign of intellectual
> laziness. This is bull market,. plain and simple. Short are covering
> in panic. Funds are loading up. We're still climbing that steep,
> high wall of worry.

Apr 20 11:21 PM

[alajac:]

Don't blame Obama.

The banking industry took over this country in 1787. The Constitutional Convention was literally PACKED with bank directors (like Robert Morris) and big investors in bank stocks (like Benjamin Franklin). They succeeded in obtaining a federal monopoly on the U.S. money supply by demonizing state-issued "scrip" the way politicians always demonize anything that stands in their way of making a buck. The original idea - to have a central bank monopoly over the U.S. money supply, with all money and credit thereafter created solely by borrowings "at interest" from banks - took a couple of tries and many very likely purposely-created panics and depressions until America's spirit was broken enough by 1913 to submit to again wearing central banking's saddle.

As Lysander Spooner once said "...the establishment of a monopoly of money is equivalent to the establishment of monopolies in all the businesses that are carried on by means of money, - to wit, all businesses that are carried on at all in civilized society; and that to establish such ...[a money monopoly]... is equivalent to condemning all persons, except those holding the ...[money monopoly]... to the condition of tributaries, dependents, servants, paupers, beggars, or slaves..."; in other words, The Golden Rule ("he who has the gold makes the rules") RULES!

Rare has been the U.S. President since 1787 who has not been beholden to "our financiers": any candidate who appears to favor "the people" over the interests of the banks will fail to get funding and endorsements (newspaper publishers are just businesses like every other large corporation and likewise "know who butters their bread"). If the original pro-bank impression appears less than guaranteed, pretexts can be invented to "drum" candidates (like Howard Dean) out of the race. Stronger measures have to be taken with those (like Robert Kennedy, Paul Wellstone, and JFK, Jr.) who look too popular to be marginalized as well as with previously bank-backed winners (like JFK) who try to change sides: you never heard George W. Bush mention even one word about "bringing the troops home" like John Kennedy did in an interview a few months before he took up "bullet catching". Lesson taught, lesson learned: good little Presidents "faithfully execute" the wars they are assigned to "preserve, protect and defend", and NEVER "rock the boat".

If Obama actually WAS on our side, he either wouldn't have gotten a MSM "pass" for his vaccuous campaign platitudes, or else he'd already be dead. As I said during my "Get Rid of the Federal Reserve and Impeach and Prosecute Bush Now!" Presidential Write-In Campaign, Obama is just another "Bush Lite", same as everyone else recognized by the MSM as having "viable" 2008 Presidential campaigns. As far as the MSM is concerned, "No banking industry backing = not a viable campaign" and that will continue to be the case until we get up off our butts and "change the fack, Jack". That task (and the implementation of steps to actually stabilize and resuscitate the U.S. and world economy) will require a new Political Party: suggestions for the name of this new Political Party can be submitted on the "alajac" page at u4prez.com.

Apr 21 03:34 AM