You Should be a Seller

In my opinion, the stock market is now in the first stages of a bear market that will eventually test the March 2009 S&P low of 666. Meanwhile, the market is on a tear to the upside over the past few trading days so I must be an idiot, right?

Wrong. This is not a rally to buy. This is a rally to sell, a gift from the heavens to get you out while others are buying. Because if you finally decide to sell when everyone else does, you will feel nothing but pain, lots of it. In my opinion, this is likely the last hurrah before the bear comes for you and all your friends and family.

Why is the market up so hard? Because that’s what bear market rallies look like. There is no good news out there driving the market. There is, right now, a huge short position in stocks because the smart guys are getting positioned for a major downdraft. The data from Investor’s Intelligence is clear: the small investor is very bullish while the professionals are not. Who do you think is right? But the smart guys may be a little early, so we have the potential for the mother-of-all-short-covering-rallies while we wait for the market to break. It’s time to sell, or go short if you know how to play the short side (not recommended for most of you).

In the last two months, the NYSE Short Interest has risen 4.5%, back over 18 billion shares and near the historical record highs of July 2008. The short interest is up seven of the last nine months. That’s why the market is bouncing.

NYSE Short Interest
Chart: Bloomberg