Even the most steadfast bear has to be impressed with the U.S. stock market action since Election Day last November and especially over the last six trading days! Can anything stop this incredible bull market?
While it goes without saying that there will be a correction at one point (very soon), it's probably also safe to say that almost every bearish ETF trader has been run over several times this year ahead of today's record high close in both the Nasdaq Composite Index and the S&P 500 Index.
Minor bearish technical non-confirmations were posted today in the NY Composite Index, Dow Jones Industrial Average, Dow Jones Transportation Average, and the Russell 2000 Index, which all failed to post all-time highs with the Nasdaq Composite and the S&P 500. However, only the under-performance in the Russell 2000 looks important in terms of forecasting a potential near-term top in the overall market.
In the interest of full disclosure, I remain short in both the S&P 500 Index and the Russell 2000 Index. The under-performance of the Russell 2000 has helped to contain the losses in my managed accounts, but there's not much comfort there.
Any bears still willing to execute short positions might find some ammunition in the fact that meaningful downturns in the U.S. stock market started in late May of 2001 and late May of 2008. While seasonal research has never been my strong suit, I like this particular negative bias in terms of partial justification of my short positions.
Of course, to really justify a short position here all you need to do is hang your hat on the recent comments from the U.S. Federal Reserve as published yesterday in the minutes that were released from the early May FOMC meeting. Buried in the tail end of a 12-page release was a potentially meaningful comment about "normalizing" the Fed's Balance Sheet by allowing maturing bonds to come due without the usual reinvestment. According to research from JP Morgan today, this normalization process could begin as early as September 2017. Could there be a "taper tantrum" in response to this potential tightening action by the Federal Reserve? Probably! If so, when will investors begin to sell stocks in earnest?
Crude oil prices were down about 5% today! Should stock investors view this extraordinary collapse as a potential signal that the so-called "reflation trade" is ending? Probably!
