It has been one heck of a three day rally. However as we get close to new highs for the year, I think it is time to take some money off the table and even put on some new shorts on for more aggressive investors. This rally feels like a "melt up" on low volume that lacks a solid foundation. For my own account, I took my 30% plus one day gain on Fossil (FOSL) and instituted a new short on LinkenIn (LNKD) yesterday as the stock was not participating in Tuesday's rally and already had a major move off recent earnings. I think the next leg here in equities is down and want additional cash to "buy the dips" in this trader's market.
10 things I don't like about the market here.
- The Germans and Italians are in full name calling mode. As outlined in the Telegraph Tuesday morning tempers are flaring, hardly a good sign for the partnership Europe needs to pull through this crisis.
- The Germans have good reason to be testy. June Factory Output fell twice as much as anticipated as it clear signal their economy is slowing down.
- Speaking of Italy, the recession there is worsening. The country just reported its economy contracted by .7%, worse than expected.
- Bill Gross of Pimco came out saying Europe should be avoided by investors for the foreseeable future.
- Doug Kass who I also respect is reducing his longs and has his lowest long exposure of the year.
- Investor appetite for risk is growing suggests BlackRock data showing July flows into ETPs (Exchange Traded Products) were driven by moves into equity funds. Of $22.6B in net inflows, $21 billion went into stock ETPs. Being a contrarian, I find this disconcerting.
- Although overlooked by most of the media, gas prices are continuing to rise. This should have a negative impact on consumer spending.
- A large portion of the 163,000 new non-farm jobs reported last week are temporary and likely to vanish soon.
- In addition, CEO confidence in the economy continues to decline. Hardly the sign of robust hiring in the near future.
- Although companies are reporting okay earnings, only about 40% of S&P are hitting their consensus revenue estimates. This reflects the slowing of the worldwide economy which I believe will continue in the third quarter.
Be careful out there. Raising some cash is a prudent move here. There will be better entry points in the near future. Happy Hunting.
Disclosure: I am short LNKD.
