I've talked about this a few times in the past....history has shown that when the 4 wk average of initial claims drops below 400K, strong and persistant job creation was immanent. With this week's intial claims number plummenting to 368K
it has pushed the 4 wk avg down to 394K, below 400K for the first time since the recovery started. The ISM number this week was also very strong yet again. Add to the mix strong earnings for well over a year poised to make new all time highs, the evidence appears overwhealming that the economy is ready to stand on it's own two feet and lagging indicators like the unemployment rate is going to rapidly improve within a year. Of course, the forward looking stock market has been reflecting these things all along...yet so many people, retail and pro alike, refused to listen and still for the most part refuse to listen. They were and still are too angry and bitter from getting burned by the dual bear markets of the 2000s to do so.
Doug Kass issued a mea culpa Wednesday morning admitting that he was too negative about the market over the past year. He claims his bearishness was too dogmatic and that he didn't listen to the market which was telling him to think otherwise. Other traders such as the "Rev Shark" over at realmoney.com (who has been atrocious with his calls) also admit to being too bearish. Although the "Rev Shark" admits strong earnings underpinned the rising market, he also blaims the effect of QE for his mishap and says how the market had a manipulative feel to it similar to the typical rants of loser permabear traders who have been crushed. Pathetic.
The above is an example of what I mean by when I said that you need to be strong in your convictions when the market is agreeing with you, when it's not it means you are either early or flat out wrong, either of which will do equal damage to your account balance. When the market is slapping you in the face over and over and over there has to be a point when you come to realization that you're wrong and it's time to change your way thinking. Unfortunately for most people, this moment tends to happen far, far too late and by the time they make the switch the market slaps them in the face again. For some with massive egos, like Prechter, such a moment never happens. He's been LT bearish since 1987. And despite the mea culpas I've noted from Kass and the "Rev Shark", these guys have not turned into full fledged bulls. They are more respectful of the market upside but still cautious deep down willing to run for the hills into their bear caves the moment the market shows any weakness.
I want to say something about market pundits like Kass. Kass made a great call when he pounded the table bullish near the March 2009 bottom. This gave him quite a boost in popularity. This is similar to how bears like Roubini and Pretchter correctly called the bear market of 2008 near it's beginning. But it doesn't surprise me whatsoever to see pundits who made great calls make terrible calls later on. I warned about this in April of 2009 when I said today's geniuses will be tomorrow's goats which is why you can only rely on yourself and be willing to bet against those who have had a hot hand calling the market if that's what's called for. You also need to do your homework on these "gurus". A lot of the times, these guys are like broken clocks who were wrong for months, years or even decades and then finally they get it right and get famous as a result. Meanwhile the media and sheep investors who lick their ass don't bother to look at their long term track record.
Ok, so back to the market now. Although it's a good thing longer term that the evidence is suggesting more and more that the economic expansion will be self-sustaining, at some point the market is going to be looking ahead to the prospect of the fed raising rates especially with inflation pressures building. The ECB has already hinted that they are prepared to do so soon. Bernanke on the other hand, sent a clear message that rates are not going to go up anytime soon and I think this is a mistake. He should have left himself some hedge clause. I think he's behind the curve and I think he'll end up capitulating and changing his tune sooner than most expect. If I'm right, the market would have to adjust it's expectations regarding interest rates and that would be bearish in the intermediate term. This is what happened in 2004 and it triggered a multi-month correction phase with the market dropping 10% throughout it...and if oil prices stay around current levels, it won't be such a bullish thing to see rising interest rates during such circumstances. These are the sort of circumstances that makes placing a bearish bet on the market more worthwhile - not one-offs like social unrest in a couple of small countries. Now of course, if the social unrest spreads to oil heavy weights Saudi Arabia, Iraq, and Iran then it becomes a much more significant concern because that could easily cause another $20-30 pop in oil. Quite frankly it's a legitimate concern to have.
Depsite all the concerns I've noted above, none of them are bull market killers...bull market tamers yes, but not killers. Also, it's going to be difficult as always to capitalize on downside moves in a bull market. Many people have already learned this the hard way on more than one occasion. The consolidation phase I'm envisioning could very well happen at higher prices and start 1-3 months from now or even longer which would can easily drive a bear or sidelined bull insane as they lose money or miss out on gains respectively. For now, I'm still sticking with my longs and cash position and still not making any downside bets....yet. If I end up doing so, it won't be a large bet. What prevents me from making such a bet is the rabid top picking that's still out there which has been counter acting to some degree I'm sure, the contrarian implications of high bullish sentiment in the sentiment surveys, insider selling and retail returning to the market. By the way, did you notice how AAII sentiment has been so quick to drop back down to 1:1 bulls vs bears for 2 weeks in a row now? And for what, a 3% pullback after the market has surged 100% in under 2 years? Yet again, this shows how fickle any retail bulls are and why I said before that the sentiment surveys are only useful for ST market timing. They are NOT a reflection of LT market sentiment which is what matters in gauging the the health of the LT market trend. Deep down, these fickle bulls in addition to the permabears which are still plentiful, are worried about another 2008 or flash crash. Survey's show that 60+% of Americans and Canadians still think we are in a recession. THAT is the sort of sentiment you should be paying attention to. When you see on TV shows like House this week still make mention of the recession and how a character on the show lost money in the stock market THAT tells you what the true underlying market sentiment is. This is why I'm bullish LT because no bull market has ended with people still talking about the recession that caused the previous bear market. It's also why I'm quite reluctant to make any bearish bets as tempting as it often may be at times. If I think the odds are overwhelming for the bears in the ST/IT, I might pull the trigger on a downside bet, but if I have any doubts whatsoever I'll pass and that's been the right play for several months. If I pass on bearish set up that ends up playing out on the downside that's fine by me. In bull markets it's best to error on being too bullish then too bearish especially in my case when my longs aren't very market sensitive. I still don't have that that gut feel that some sort of meaningful correction is immanent - like witinh a week or so. The last time I felt this was in early November and that correction ended up being rather mild.
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