The market has rallied a bit more than I anticipated, especially given the paucity of firms (about 40%) beating on the top and bottom lines as we close out second quarter earnings season. I think investors have been extremely fortunate up to this point and should seriously consider taking some money off the table, if they have not already done so. Any good short ideas should be put in place now for aggressive investors as well. Equities feel extremely "toppy" here, and I would not be surprised if we have hit the highs for the year.
10 disturbing signs for the market:
- Doug Kass pointed out yesterday out the S&P is heading for a triple top, an event that usually means ominous things for the market.
- Worse, the Transports are diverging from the overall market in a significant and negative way (See Chart). Another traditionally bad sign for the market.
(click image to enlarge)
- The August N.Y. Empire Manufacturing index came in at -5.85 instead of the expected positive 7.0. This is the first time the index has been negative since October of last year.
- The country is about to be bombarded by ads from the biggest and most negative presidential campaign in modern history. This can't be healthy for consumer sentiment or business confidence. It also says something about the intellectual political discourse in this country when there are more Google searches for "Paul Ryan Shirtless" than "Paul Ryan Budget."
- Multinational firms continue to be hit hard by a strong dollar and rapidly falling sales in Europe. Today's casualty was Staples (SPLS), where this combination led to an 18% reduction in international sales in the recently reported quarter.
- Europe is no longer stagnating, it is declining. The continent's GDP growth just came in with a .2% decline for the quarter despite growth in Germany.
- Demand is Latin America and Asia is also becoming a concern. Deere (DE) is getting hit hard today as it reduces its forecast on weakening demand in those regions.
- Greece is in the news again. The country...surprise, surprise...is seeking a two-year extension for implementing austerity measures. I think it is way past time to kick this miscreant nation out of the eurozone and let it go back to its proper place in the world with the drachma.
- And while all eyes in Europe are on the PIGS, France may be the next economy to turn over. This would be a real game changer.
- Finally, it is only 138 days until we hit the "Fiscal Cliff."
Be careful out there