mustbepatient (99.44)

The case for a short-term market peak

April 24, 2009 – Comments (1) | RELATED TICKERS: BGU , TNA

Last month, I made the case for a market bottom at what turned out to be an opportune moment.  I'm going out on a limb again here and saying that the market is probably at a short-term peak.  While I am not red-thumbing anything in CAPS (I've become fond of my Yes Man charm), I am net short in my trading account (short BGU and TNA).

I've been saying for some time that this rebound will probably last until the S&P 500 reaches its 200-dma, where most bear-market rallies tend to end, but we started very far away from it so we should not expect it to get there in a straight line. 

1.  The case for being overbought is easy to make; pick any indicator and it will show overbought right now.  The market being overbought doesn't always lead to a selloff, but it adds risk to the long side.

2.  Market internals are slipping.  For example, on Thursday the S&P 500 closed up while less than 40% of Nasdaq stocks were actually up.  Historically, this leads to negative returns.  (The link goes to a chart on Quantifiable Edges, which is a great site for analysis of conventional trader wisdom.)

3.  There is a lot of anticipation of bank "stress test" results.  Based on market action, I think this anticipation is causing a lot of short covering and short-term buying.  I expect this to lead to a "sell the news" reaction almost regardless of the actual results; keep in mind that the results have been pre-announced to be good.