Factors Aligning for Fall - 08/07/09

August 7, 2009

Factors Aligning for Fall
By Doug Kass, The Edge

Yesterday might prove to be an important, pivotal and negative day in the market.

Cash for Clunkers could borrow from 2010 automobile sales and from current retail activity.

If I am correct that the shorts have been obliterated, then this is one of the requisite conditions for a market fall.


While this morning's jobs report will no doubt influence short-term market direction, yesterday might prove to be an important, pivotal and negative day in the market, despite Goldman Sachs' Abby Cohen declaration of a new bull market on CNBC!
After the S&P 500 futures jumped by over 11 points in premarket trading, continuing claims and sluggish retail sales reversed the early strength and the market closed uncharacteristically lower.
As to retail sales (last month marked the eleventh consecutive monthly decline in sales), I have argued that the Car Allowance Rebate System program might be ineffective on several counts and could borrow from 2010 automobile sales and from current retail activity.
Importantly (and a steady message of mine!), as underscored by the weak chain store sales, the consumer remains the Achilles' heel of the economy. (Last night, Sir Larry Kudlow reiterated his belief in the monetarist view of Say's Law of Production that it is business that spurs consumer income and spending; I believe in the opposite view.)
Despite protestations from many, including Jim "El Capitan" Cramer, that shorts are rampant, I am in disagreement with them as well. If I am correct that the shorts have been obliterated and that most traditional institutional (and hedge fund) shorts are considerably weakened and essentially non-operative in today's markets, my experience is that this is one of the requisite conditions for a market fall.
For sure we are in a bull market in complacency, another precondition to a market correction, with many market participants who were maximum bearish at the market lows in March now appearing to be at the polar opposite extreme.
In advance of the jobs data, futures are slightly lower again this morning.
Finally, thanks to the load of subscribers who attended my talk in East Hampton last night. It was great seeing all of you!