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  • Why I'm Not Buying The 'Bull Market' Bull

    OK, so I chose the title to stir controversy... so shoot me!

    Obviously we are and have been in a bull market, but my point is that the signs of its impending end are too many (and growing) to allow me more than a small, very cautious short-term long position. Kirk Spano tells a great tale about this from a macro-economic standpoint, but I'm just a simple guy, so I'm focusing on the basics: momentum and volume support.

    Take a look at this chart of SPY compared to its volume since early February. The uptrend is obvious (as the linear regression shows) but equally obvious is the fact that volume consistently increases on pullbacks and dries up on advances. Not so bullish, long-term.

    (click to enlarge)SPY vs Volume since 2/4/2012

    Now look at the same data with the trend removed from the price line. The disconnect between direction and volume is not only clear, it's astounding. That's a correlation of -.78 between price movement and its volume support!

    (click to enlarge)Same data de-trended

    Finally, note the clear and continuing divergence between the uptrend of price and the 14 day RSI. This rally has been steadily losing steam since right after the holidays.

    (click to enlarge)SPY Momentum Divergence

    Now, I don't know what the market is going to do (and neither do you, admit it), but for me to get excited about the 'upside potential' right now, I'd need to see the volume curve turning upside down (or going back to right side up, if you prefer) and a decisive break above the downsloping momentum trend. Barring that, I'm going to remain ready for 'The Running of The Bulls', and I don't intend on getting gored!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 25 3:08 PM | Link | Comment!
  • Don't Hate Me For Shorting

    For some (a shrinking number) the very idea of betting against the market is blasphemy. Whether they come by that idea from a nostalgia for the days when the primary purpose of investing was to support quality companies (and earn dividends) or whether they are simply following what they've always been taught, in my opinion their view is outdated.

    First of all, the market today is nothing like the 1940's. Even the strongest companies can become irrelevant overnight because of rapid market shifts (read: technology) and the index-ified nature of today's markets means most stocks rise and sink together regardless of its fundamentals.

    Second, I'm in this to make money. Just like you. Just like everyone else. I make money by accepting risk and neither money nor risk is directional. If I gain from economic turmoil then I will be in a better position to help create the next recovery, by spending the gains of riding the market down. If everyone loses all at the same time, who will be there to pull the economy back up?

    Finally, it just doesn't make sense to hold an asset that is depreciating. Finance 101: Depreciating assets lose value. I want to gain value so I buy assets that are going up. Index puts go up in a bear market, so I buy them. Just business, OK?

    Everyone has an opinion, and nobody is right all the time - but if I buy (or hold) a sinking ship, I will sink too. That wouldn't sit too well with me or my family (read: kid's education, retirement with wifey). I want the best for our economy and I love this great nation of ours, but a man who burns his own house down is a fool. I may be stupid, but I ain't no fool.

    Disclosure: I am long SPXU.

    Apr 16 6:48 AM | Link | Comment!
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