4/6/2016 – A positive day with the Dow Jones up 113 points (+0.64%) and the Nasdaq up 77 points (+1.59%)
According to the bulls, this bull market is just starting. Consider the following.
Amid its biggest about-face in nine decades, a funny thing has happened in the U.S. stock market, where rather than loosen their grip bears have grown ever-more impassioned. They’ve sent short interest to an eight-year high and above $1 trillion, by one analyst’s math. Position reports from the Commodity Futures Trading Commission show mutual fund managers are more skeptical now than any time since at least 2010.
Let’s not forget a substantial commercial VIX long position (COT Report) that can or should be grouped into this. The above can be interpreted in one of two ways. Sure, it can be argued that the metric above is extremely bullish and that such a high short-interest can provide the jet fuel needed to proper the market to new all time highs.
Yet, there is another interpretation that no one one is talking about. And while I can’t prove it, I believe quite a few investors/managers are looking at today’s market with their jaw wide open. They have never seen such a blatant manipulation by the FED and such wide divergences between economic/earnings reality and today’s bubble valuations. That is to say, if there has ever been a “brain dead” ideal market short setup, we are witnessing it today. And from that angle, record short interest makes sense.
Correct me if I am wrong, but Tom Lee has been “extremely” bullish over the last two years. Yet, during that time the NYSE (largest index by capitalization) is down close to 10%. Still down close to 10% and is in a clear bear market pattern. Plus, he was “extremely” bullish prior to August and January sell-offs.
Nevertheless, let’s take his claim that we just had a “March of 2009” bottom event in February seriously and consider his bullish points.
His Comment: As to why, it is not entirely explainable but in retrospect, the period from August 2015 to February 2016, was a “bear market” even though the S&P 500 did not statistically fall 20%. We realize many investors look to the remainder of 2016 with apprehension, however, we believe equity markets are poised to make new highs in coming months. the stock market has had its “March 2009” moment.
My Comment: My Dow charts go back to May 19th, 1790. Not in the single instance do I recall a full on bear market lasting just six months. To somehow link up recent January’s sell-off to March 2009 bottom is irresponsible at best. It makes no sense. It would be similar to comparing apples to donkeys. Not only in terms of % decline, how long it took and where we are in the cyclical composition of the market, but from the perspective of even calling this a bear market.
I believe the confusion stems from trying to figure out where we are in the overall composition of the market. As outlined in my previous articles, quite a few bulls assume that we have started a new bull market from 2009 lows. And in a sense they are correct. We will not go below that low. Yet, they are wrong about where we are today. We are still within the confines of a 2000-2017 secular bear market. Bear markets that typically end with a 2-3 year declines.
His Comment: First, he anticipates a recovery in sales and earnings, as the adverse effect of the strong dollar on corporate earnings reduces.The dollar’s 10% jump last year subtracted about $93 billion, or $10 a share, from S&P 500 company earnings, he calculates. But more companies should report sales gains this year as the dollar’s drag fades.
My Comment: And I anticipate that I will win a lottery tomorrow. Two issues here or two deadly assumptions. First, why would earnings recover? The Fed liquidity party is over and there no growth drivers out there. Further and as outlined on this blog before, GAAP earnings are down 18% from just a year ago and there is nothing to suggest that they will stage a miraculous recovery. Second, he assumes the USD will continue its decline. That’s a big assumption. What if the dollar breaks above recent high – no matter what Janet Yellen does? Quite a few very smart investors think the dollar will push higher. That is to say, there a lot of “IFs” in his analysis
His Comment: Lee says, the imbalance between oil supply and demand keeps getting closer to equilibrium every month. Later this month, a meeting between OPEC and non-OPEC members could produce an agreement on output cuts, though Saudi Arabia has threatened to abstain unless Iran gets on board.
My Comment: Seriously? Some of the best oil traders in the world are being fooled by the recent moves in the oil market, but don’t worry, Mr. Lee knows exactly what the oil or Saudi Arabia or Iran or Russia will do going forward. His view is sheer nonsense.
His Comment: Lee notes the high levels of short interest in stocks, or investors’ bets against their advance. He says the level of short interest — 4.3% of float — tops the levels seen in March 2009 when stocks bottomed.
My Comment: I addressed that above. This is just as bearish as it is bullish.
His Comment: Lee also expects the US consumer to remain a “bright spot” in the economy.
My Comment: Again…..based on what? See the first two comments.
With that in mind, since Mr. Lee is so confident in his analysis and view, I am sure his own personal portfolio is loaded with short-term (summer) call options. Perhaps he can retire as soon as his high probability forecast comes to fruition.
This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2014/15-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years. If you would be interested in learning when the bear market of 2014/15-2017 will start (to the day) and its internal composition, please CLICK HERE.
(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. April 6th, 2016 InvestWithAlex.com
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