Don't Believe This Bull - 03/25/11

Upside surprises are peaking, and downward revisions in profits and growth should be over the horizon. As such, the risk/reward of the U.S. stock market is now shifting more negative.

In the words of a broken heart
It's just emotion
That's taking me over
Tied up in sorrow
Lost in my soul.

-- The Bee Gees, "Emotion"

Emotions have clearly taken over both sides of the market this month.

This week, the animal spirits rallied to reverse the prior week's panic, and we now stand flat for March.

I am not convinced (as many appear to be) that the bull is suitable for framing as the foundation of economic and corporate profit growth is beginning to crack.

When I listen and watch the talking heads and commentators in the media, who were quite pessimistic a week ago, turn around in a chorus of optimism now, it is almost laughable. I listen to their bullish sounds with skepticism -- just as I ignored their negativity a week ago.

And my advice is that so should all of you ignore that noise.

From my perch, upside surprises are peaking, and downward revisions in profits and growth should be over the horizon.

And with Black Swans appearing with greater regularity, an anemic recovery pestered by continued tail risks is still hostage to more adverse developments and shocks.

I have developed scars over the over the years from fighting the tape, and I am not yet meaningfully fighting the recent price momentum.

Nevertheless, unlike most, I don't believe this is the start of a new bull leg.

I have described the market as more closely resembling a trading-sardine market (more on this Monday) that will be confined to a range between 1,250 and 1,350 on the S&P 500.

As such, the risk/reward of the U.S. stock market is now shifting more negative.