Featured Trades: (WHY I'M SELLING THE MARKET),
(SPY), (SPX), (SDS), (TLT), (DIG), (FXE), (UUP), (GLD), (SLV)

 

2) Why I Am Selling the Market Here. I have started batting out short positions as fast as the market can field them. To be more specific, I am buying puts and selling calls on the S&P 500 (SPX), loading the boat with the double short ETF (SDS), and unloading other asset classes as well.

I get asked more questions about market timing than anything else. Why here? Why now? Let me give you a list of reasons I picked this particular week to hit the sell button. You will find a minestrone soup of fundamental and technical reasons. I try to use every tool in the bag when making a call like this.

*The collapse of silver. The white metal has morphed into a great leading indicator of global risk taking as a whole. The $7 plunge in London on Sunday night was all I needed to sell.

*Good news was having a declining positive influence on prices.

Hey, Where's My Rally?

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*The calendar. Tech earnings lead every earnings season, starting it off with a bang, and the global consumers get to speak first in this process. The excitement trails off after that.

The Fireworks are Over for the Earnings Season

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*The calendar. The first day of the month was always up big, as monthly allocations hit the market. When it wasn't on May 2, the red light started flashing.

*The calendar. Sell in May and go away. It is not more complicated than that.

*PE multiples, at 15, are in the middle of their historic range of 10-20, but at the top of what I believe is their future range of 10-16, with US GDP growth at 2.0%.

*All 'RISK ON' asset classes, from the euro (FXE), to gold (GLD), silver (SLV), oil (DIG), and bonds (TLT) have been moving in complete lockstep to the upside. This has only happened a handful of times in the last century and always ends in tears. When everything rolled over in unison this week they were begging me to sell.

*Correlation among asset classes is now at an all-time high.

*Investor sentiment was reaching extremes, with 54.9% bullish and only 16.5% bearish, saying that the market could only go down from here, as all the buyers are already in.

*Every big hedge fund manager I know has been scaling back positions since February, many cutting back positions to a few million dollars on the desks to keep the kids from getting bored.

*The Q1 GDP was a shocker, from 3.1% to 1.8%

Q1 GDP Was a Shocker

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Weekly jobless claims have suddenly started to worsen.

*The put/call ratio has gone through the roof, hitting 2.0, as portfolio managers start piling on downside protection.

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Everyone is Now Rushing for Downside Protection

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*The reallocation out of risky sectors, like technology and energy, and into safe ones, like health care and consumer staples, could not have been more clear.

*Listen to Dr. Copper. He was shouting at us that the markets peaked in February.

*A number of technical programs I follow started spitting out sell signals on Monday. At a minimum, we will hit the 50 day moving average for the (SPX) 40 points lower at 1,320.

When stocks and bonds give conflicting signals, it is usually the bond market that is right. Recently stocks have been going up, meaning the economy is great, while rising bonds have been signaling a weak economy. The global bond market is ten times larger than the US stock market, meaning they have far greater resources to pour into research and analytics. Sell stocks.

1) Phoenix Strategy Luncheon Review. The hotel was not hard to find. Just turn right at the cow skull, left at the tall cactus, and head directly towards the abandoned mine. That took me to the luxury resort that was hosting my April 28 strategy luncheon in Phoenix, Arizona.

At this point I have been through my presentation so many times that I tossed it, handing out the hard copies to the readers. What ensued was a three hour Q&A, much to the edification of all. By the afternoon, there wasn't an asset class we hadn't covered in excruciating detail.

An engineer from one of my favorite companies on the planet, Freeport McMoRan (FCX), informed me that I had a huge fan club there. And yes, the long term outlook for copper is great.

Another in the real estate industry told me that hedge funds were snapping up second mortgages on homes with performing first mortgages, but negative equity, for 3% on the dollar. They then resold them to the homeowners for 6 cents, eager to clean up their credit rating. The credit unions who own those have already marked them down to zero and are happy to be rid of them. A 100% return on capital with minimal risk. Nice!

And then there was the ebullient, almost bubbling, young couple who related that my short gold trade in February paid for a second honeymoon in Florida. I hear these stories every day, but still love it. I touch lives in so many ways, they almost can't be counted.

The price for the greatest distance traveled went to a gentleman from Ohio. Spend your Zimbabwe dollars wisely. They were well earned.

I arose at 5:00 am for a two hour hike in the mountains to inspect the local geology, which I often do in strange cities. It was classic gold mining country, with quartz veins everywhere. But the only turquoise I found was in Chief Dodge's Jewelry Shop. A free afternoon found me on a tour of the home of the legendary prairie school architect, Frank Lloyd Wright, known as Taliesin West, where he spent the last 25 winters of his life.

On the way home, I lost another Swiss army knife to homeland security. I ended up in economy, sitting next to a big fat sweating slob who wolfed down a dreadfully odiferous pastrami sandwich and then fell asleep on my shoulder.

The Directions Couldn't Be More Clear

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Hanging Out at Frank's House

'We are starting to see signs that the smart money, the 1% who make most of the money, are starting to get out of the market,' said Harry S. Dent of the HS Dent network.

Featured Trades: (STOCKS JUST GOT A LOT MORE EXPENSIVE)

 

3) The Stock Market Suddenly Just Got a Lot More Expensive. The news on Thursday that Q1 GDP growth came in at a piddling 1.8% annualized was a huge disappointment. The number was under the low end of most predictions, and a far cry from the reasonable 3.1% rate we saw in Q4, 2010. However, it is completely consistent with the long term 2.0%-2.5% rate that I have been forecasting in this letter. That is a mere shadow of the 3.9% rate we saw during the last, steroid powered decade.

The stock market is going to have a big problem with this number. It has recently been ascending at a rate that assumes at least a 4% rate. When cooler heads prevail, and traders take their smelling salts, they will realize that the 1.8% rate in no way justifies the current level of stock prices. Those fingers hovering over computer mice will get itchy, and some serious selling will ensure.

How did the markets respond to the news? Stocks, bonds, gold, silver, foreign currencies, and oil all blasted through to new highs for the year. If you needed any proof that the markets have reached the final capitulation bubble stage of their move, this is it.

An analyst friend of mine told me yesterday that this kind of perfect correlation among all assets classes has only occurred a handful of times in the last century, only lasted a quarter, and always ended badly. Even my own Macro Millionaire model portfolio has surged to a new all-time high every day this week, and is now posting a 27% return in five months.

Of course, it is theoretically possible that you can flip a coin and get heads, draw a perfect blackjack, or pull an inside straight, 20 times in a row. But you won't catch me betting my, or your, money on it actually happening. Thank you Ben Bernanke!

Thanks for the Great Run, Ben!