There?s nothing like coming home and getting slapped in the face with a fresh mackerel the second I step off the plane. That?s what happens when you travel from a continent that is universally positive about US stocks, to one that is largely negative.
Take a look at the chart below from my friends at Bespoke Research, showing that 66% of all investors are now bearish on stocks over the next 30 days, nearly a two year high. That takes us out to mid September, when Ben Bernanke gives us his decision on whether to start tapering and pare back quantitative easing, or not. I don?t think he will do it, but the majority of the market thinks he will.
The economic data do not justify it. Strip out the weekly noise and focus on the longer-term averages, and the picture becomes more clear. During the second half of 2012, monthly job gains averaged 180,000. In the first half of 2013 the number bumped up to 202,000. That is an improvement, but is far shy of the 400,000 in monthly gains seen at this point in past economic cycles.
You also have to consider Bernanke?s inordinate fear of doing a 1937 repeat, when the country fell into the second leg of the Great Depression due to premature easing. That means he will continue to err on the side of over stimulation. Add all this up, and you get no taper in September, December, or even in early 2014. When markets figure this out, they will rocket to new highs.
So why are stocks so weak now? Blame it on the summer doldrums, which is why I spent the last two months sunning my self in Europe. Watching the market action today, it is clear that the ?B? teams are still in charge on the trading desks. Write it off to the fact that the market has gone up for nine months straight and is begging for a rest. It is nothing more than that.
My bet is that we are in for another standard correction. So far, we have breached the 50-day moving average at 1,658, off 3.3% from the recent highs. The largest decline this year has been the 7.3% we saw in May. A 9.5% dump takes us down to 1,552, bang on the 200-day moving average. That?s where you load the boat on the long side for a yearend run to new highs.
Sorry for the delays in my recent posts. As soon as I got home, the hard drive on my iMac promptly blew up. This, no doubt, is thanks to the porters who dropped my luggage at the last 20 hotels I checked into. So I have been working from my six year old backup Windows PC, which I have largely forgotten to use.
What?s that delete button for? And where?s the damn finder?
