The market is going to crash. This is all we have heard from the permabears for the past 3 years. It's getting old. While the near term suggests it's clearly time to exercise caution, as shown below by the chart of NYSE highs less NYSE lows, by no means does it suggest shorting stocks.
For 3 years now the general public has missed enormous gains in the market (SPY) because of their own bias (i.e., prior losses clouding their own objective thinking) and because of the excessive fear spread by bloggers and the media alike, people with vested interests in seeing lower stock prices. Perhaps they missed out on the rally off the bottom and are hoping things return back to the 2009 lows so they can buy again. Let's just say this happens. Having missed the 2009 bottom and the subsequent rally, what makes these people so sure they will spot the bottom and go long?
A History of Wrong-Minded Pundits:
From Doug Kass's constant tweets about being 63% short and telling us to read his narcissistic "Best of Kass" to Keith McCullough's aggrandizing how the shorts are the smart ones in the market to the sage advice from the guest writers at Zero Hedge, one could easily get swept up in the negativity.
We've heard Kyle Bass on CNBC touting the coming downfall of Chin, that the Markets Have Already Told Us That Europe Currently Has a Broken Monetary System and how it will have adverse effects on the US markets (ask Japan if their downfall had an impact on the US from 1990 to 2012). We have heard Peter Schiff expound on the coming collapse in the US brought on by the Fed and it's senseless policies of money printing.
It's the Sentiment, Stupid
Sure we can read reports on market sentiment from Mark Hulbert of AIA or any other source, but the true heart of the market sentiment can be found in message boards. All anyone has to do is watch an interview on Yahoo Breakout centered on bullish themes or optimism and then get a sense of the sentiment of the market by reading the responses written below the article. Likewise, go here or even better yet, go to the true "market guru" at www.ticker-forum.org and post a comment on your bullish take on the markets and be prepared for an onslaught of negativity.
A Potent Potion for Market Gains
You see, the reason the market has rallied and continues to rally is a wonderful blend of a few things:
(1) Earnings - Yes, those crazy things that keep companies in business and allow them to pay dividends to their shareholders and buy competitors.
(2) Excessive pessimism - see above
(3) Business cycle - The economy ebbs and flows. Housing was awful in the 2000s? Well guess what? It's now cheaper than renting in a lot of places and over the past 7 years population growth has created more households than houses being built.
(4) Monetary support - QE till the cows come home. Permabears are sure that this is the lone reason for the 3 year rally. I would argue it has far less to do with the rally than those in the know.
This Is the Sign of a Top
Surely, like the magazine covers signaling a bottom or top is near, thumbing my nose at the perma bearish media and bloggers alike spells doom for the bulls. While I agree that in the short term we should exercise caution, by no means do I think it makes sense to get caught up in the fear (and there's still lots of it out there).
You should always be looking for opportunities. Just in the past couple of months I have pointed out several opportunities to make nice gains in stocks like Savient Pharmaceuticals ((SVNT) - see my article), Diamond Foods (DMND) (see my article on Diamond Foods), Nanosphere (NSPH), Nokia (NOK), YRC Worldwide (YRCW) (which I believe is one of the best opportunities in the market right now), and Natural Gas (UNG). So please set aside your bias and focus on making money. When fear is rampant like it was last fall or over the late spring, view those periods as opportunities to find things on the cheap. None of us is smart enough to know where the markets are going over the short term. And focusing on that will prevent you from making significant gains in the market.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.