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By: LINK on Martedì 22 Gennaio 2013 23:59
SOmething We’ve Waited Months for Just Happened
Friday, January 18th, 2013
By Michael Lombardi,
Yesterday, something very, very important happened in the stock market.
The world’s most widely followed stock market index, the Dow Jones Industrial Average, closed yesterday at 13,596.02. This is the index’s highest level since early October of 2012 when the Dow Jones Industrial Average hit a post-Great Recession high of 13,661.87.
At this point in the stock market, we have more bullishness than I’ve seen in years. I’m reading about many stock advisors saying the Dow Jones Industrial Average will move higher because the economy is doing “a lot” better.
Optimism reigns everywhere! We hear the real estate market is improving, we hear the unemployment rate is below eight percent for the first time since Obama took office. The “everything is okay now” comfort level has snuck right back in and the stock market is moving close to where it was in October of 2007. (It only took five years and trillions of dollars of newly created money to achieve it!)
I’m in that small—okay, let’s call it very small—camp that thinks otherwise. While the stock market could edge just a little higher here as the optimists pour more money into the market, my opinion is that the Dow Jones Industrial Average and, for that matter, most stock market indices are making one great big top.
Here are my five reasons why I believe the Dow Jones Industrial Average is making a top:
1.The number of stock advisors who have turned bullish is near a multi-month high, while the number of advisors turning bearish is at a multi-month low. This has proven to be a good contrarian indicator over the years, as it has been proven that when the great majority of stock advisors expect the stock market to go in one direction, the Dow Jones Industrial Average usually goes in the other direction.
2.Insider selling compared to insider buying is also near a multi-month low. This is negative for the Dow Jones Industrial Average.
3.Earnings growth for 2013 will be very limited compared to the past four years. Companies have cut their interest rate expense and have been able to borrow money at very cheap rates. This has helped corporate earnings immensely over the past four years. But where will earnings come from in 2013? Don’t look at consumers; they’re still not spending (mostly because they don’t have money to spend). The strong earnings coming out right now for the Dow Jones Industrial Average companies, when you look at them, are from the big banks—sure, they’ve been helped the most by the Fed.
4.World economies are slowing at their fastest pace since the Great Recession. American companies (40% of the S&P 500 companies derive sales from Europe) cannot help but see their earnings negatively affected as world economies slow.
5.Finally—and I know I have written about this many times in Profit Confidential—all we have experienced since the Great Recession is artificially low interest rates, trillions of dollars printed out of thin air, and trillions of dollars borrowed by the government. It’s all artificial! There has been no structural improvement to the economy. How do the Fed and government deleverage themselves now ?
So there you have it. Yesterday was a very important day for the Dow Jones Industrial Average, as it has moved very close to what I believe will be a stock market top. Short sellers take note: a huge opportunity to make money as the market comes down is just upon us.
