U.S. Stock Market - Five Year Bull Run Is Done!

Depending upon which index you follow, the last major U.S. stock market bottom was posted between March 10th and March 24th, 2009. For all intents and purposes, the five year anniversary of this sentinel event is therefore NOW. And with mutual fund 5-year investment returns now at their absolute best, it's not hard to understand why Main Street investors have been pouring their hard-earned savings into stock funds over the past year. Of course, let's please not forget that these same investors were exiting stock mutual funds month after month for almost four years in a row before last year (the final year of this bull market).

Bottom Line: The 5-year Bull Market in the U.S. Stock Market is over! A new bear market is now underway, and traders and investors can expect at least a 20% decline over the next 6 to 12 months.

Mark Hulbert, who is best known for his market newsletter ratings, published an excellent research note in today's "weekend" Wall Street Journal edition about the record pace of corporate insider selling in the U.S. stock market. Hulbert's column today discusses the latest research from Nejat Seyhun, a finance professor at the University of Michigan who has extensively studied insider trading behavior. Professor Seyhun has found a unique way to analyze the raw insider trading information and his conclusion bears attention. He strips out the largest shareholders from the sell-to-buy ratio, and that new adjusted figure shows the current record level of insider bearishness right now. According to his calculations, corporate officers and directors in recent weeks have sold an average of six shares of their company's stock for every one that they bought. That's more than double the average adjusted ratio since 1990, when Professor Seyhun's data begin. One year ago, Professor's Seyhun's adjusted ratio was solidly in the bullish zone, he says. The current message of the insider data "is as pessimistic as I've ever seen over the last 25 years," he says. What makes this development so ominous, he adds, is that, while no indicator is perfect, Professor Seyhun's research has shown that "the adjusted insider ratio does a better job predicting year-ahead returns than almost all of the better-known indicators that are popular on Wall Street."

And what's all this talk about "Income Inequality" lately? You can't listen to any news media outlet recently without hearing at least one reference to "income inequality" from newscasters, columnists, the Obama Administration or leading Democrats on the Hill. If ever there was a threat to corporate profits and margins, THIS IS IT ! An increase in the minimum wage to $10/hour is a given; and mandatory overtime pay for selected salaried workers probably has a legitimate shot at becoming law this year. We may actually be witnessing just the opening salvo in an extraordinary Government campaign to redistribute wealth in the United States. AND WALL STREET WON'T LIKE IT !!

The news from Ukraine/Crimea/Russia and the Euro-zone will get much, much worse before it gets better. While I don't think there will be a major financial collapse on the same scale of  Long Term Capital Management in 1998, the players are all the same (Russia, major hedge funds, corrupt politicians, incompetent central bankers, and related potential sanctions and subsequent probable defaults).

In the interest of full disclosure, I currently hold a large position in the Pro-Shares Ultra-Short S&P 500 ETF (symbol SDS) in one of my managed accounts. 

S&P 500 Monthly Bar Chart with Computer-generated Buy & Sell Signals

Russell 2000 Monthly Bar Chart with Computer-generated Buy & Sell Signals