Batten Down the Hatches for a Dive

Here we go again.

There have been an inordinate number of times in the past couple of years that the indices have seemed poised to plummet. Right now is one of them.

Invariably, these iffy periods have proved to be the right times to go long, despite good arguments to the contrary. These beaten-to-death arguments have included:

Unprecedented bearish insider sentiment and many other technical indicators flashing red.

A current account deficit in never-before-seen territory as a percentage of GDP.

The beginnings of a period of rising interest rates and declining corporate earnings growth.

Overindebted consumers and an overindebted government.

An overinflated housing market and concerns about Fannie Mae's (FNM - commentary - Cramer's Take) financial health.

Energy and commodity prices going through the roof.

Natural disasters wreaking havoc in sizable parts of the country.

None of these factors, concerns or facts have tripped up stocks for long -- most indices still trade close to four-year highs.

Bulls point to the market's ability to absorb such blows in the past as an indication that the present dip will resolve to the upside as well. That same logic is also specifically directed at consumer spending. According to the most recent retail sales numbers, Americans didn't cut back on spending as much as feared, despite the hurricanes, high gas prices and a large drop in consumer sentiment.

Surely, bulls argue, the consumer has proven impervious to troubles once again, and that should save the indices from another dire technical test. Energy prices have declined recently as well, and in any case, the fabled "Plunge Protection Team" would never let a crash occur. So what's the worry?

This Time Is Different

I gave up worrying nearly a year ago after losing too much money betting that the economy's textbook problems would result in some sort of comeuppance for the indices. Instead, I employed a raft of technical indicators to help me with short-term tactical decisions, while still believing the negative insider sentiment and numerous imbalances would come into play at some point.

Using this approach over the last 12 months, I have turned my underperformance as of Election Day last year into a market-beating performance. Clearly, it has paid to not be a curmudgeon. But there are extra signs that the market's present weakness may be a bit more lasting than dips in the recent past -- signs that all those pent-up imbalances may finally be starting to matter.

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At the time of publication, Moreland was long SWB and OSIS, although holdings can change at any time.

Jonathan Moreland is director of research and publisher of the weekly publication InsiderInsights, founder of the Web site InsiderInsights.com and the director of research at Insider Asset Management LLC. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, Moreland appreciates your feedback; click here to send him an email.