Seeking Alpha
Research analyst, tech, micro-cap, contrarian
Profile| Send Message|
( followers)  

When Friday rolls around, we roll out the charts as a picture is supposed to be worth a thousand words. So, we figure, why not embrace it? This week, we're serving up some timely Japanese economic data. Then we're scoffing at all the bears. (And we're making sure we have good reason to be so brazen.) Last, but not least, we're revealing the single most encouraging data point we've seen all week.

Buy, Buy Japan?

Forget that the Nikkei 225 Index is up 23% over the last three months. (Can you say momentum?) Or that I was bullish on Japanese stocks way before it was cool. The only "Japan talk" going on this week involves government bond yields.

(click to enlarge)

They just experienced the "sharpest three-day steepening [spike] … since April 1995," according to Nomura. That has some folks fretting about a (gasp) default. But everyone needs to "simma down now." I know the spike was sudden and all. But yields didn't break out into uncharted territory. In fact, they were much higher, relatively speaking, only a few weeks ago.

A Correction Is Coming! A Correction Is Coming!

The market is so overdue for a correction, right? Well, that's what the talking heads keep telling us. Riddle me this, though, Batman: Why isn't anyone betting on it?

(click to enlarge)

The latest short interest report for the S&P 1500 Index reveals that bets against stock declines remain near all-time lows. The average short interest as a percentage of float checks in at 5.6%. Now, the "smart money" has a pretty good track record of increasing their short bets ahead of stock market declines.

As you can see, short interest spiked ahead of the mid-year swoons in 2012 and 2011. And it shot to the moon leading up to the financial crisis. So what gives this year? Well, considering we're so overdue for a correction, it must be that the smart money suddenly got stupid, right?

In all seriousness, I don't have a crystal ball. But if a correction was so clearly in the cards, we should expect to see short interest creeping higher. And it's not.

Sell in April and Go Away?

Now that I've chastised all the bears, I have a confession. I wouldn't be surprised one bit if stocks took a breather soon. I mean, that's exactly what they did right around this time last year.

(click to enlarge)

Of course, they then proceeded to rally back in a big way. Bring on the déjà vu, Mr. Market. We can handle a brief sell-off -- followed by a monster rally. I promise that you'll get no complaints here.

Good News for Earnings, Bad News for the Government

I've featured the NFIB Small Business Optimism Index here before. The latest reading reveals that Washington is still a major problem.

(click to enlarge)

The good news is, only 17% of survey respondents cited poor sales as their biggest problem. Could it be that the economy is actually recovering? Say it ain't so! All kidding aside, that's encouraging news in relation to the two metrics we talked about on Wednesday. It could point to a much better quarter for sales than anyone's expecting.

Source: Panic In Japan, And Why Businesses Hate Government Too