Heading Towards A Lasting Top

In the very short term I don't believe that the market is done correcting. Sentiment has become so stretched that the bulls should get a gut check at minimum. I expect we will see another down day either today or Monday. After that the near term outlook becomes a lot murkier as I could make an argument for both the bulls and bears.

If the market does manage to rally into late April I believe it would be an exquisite shorting opportunity. And I am not talking about the type of opportunity where I short in the morning and cover in the afternoon.  I believe the top for 2010 would be in. These are the reasons:
  • The government will start selling Citigroup shares in late April.
  • Positive seasonality becomes negative seasonality.
  • If we rallied into late April, could you imagine how stretched sentiment would be on both a short and intermediate term basis?
  • Quantitative easing ends this month.
  • Another wave of mortgage resets is starting.
  • In the latter half of the year stimulus becomes a net negative year over year.
  • Comps become tougher.
  • Municipal and sovereign imbalances are getting worse.
I can go on but you get the point. 


Anonymous said...

"exquisite shorting opportunity" - that's the kind of conviction that i get excited about!

Onlooker said...

I would agree with that, although we'll have to wait to see what kind of momentum the market has and what it's internals are showing at the time (i.e. summation index, A/D, new highs, and the like).

Right now I see a shallow dip as those numbers are just too overpowering right now. The RSI we saw into the peak portends much strength and a quick dip that will power us upward to the 1200 mark and above. How high? Who knows, but shorting here will have to be done deftly.