Kass: Heed These Headwinds

These blog posts originally appeared on RealMoney Silver on April 29.

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Equities Looked Topped Out

7:15 a.m. EDT

Equities, as expected, have moved to the top end of the trading range. My current view is that it will be tough for equities to break through with the numerous headwinds the economy and credit market face. As a result, I recently reduced my outlook to slightly more bearish on both the near-term and intermediate-term prospects for the market.

Here is some overnight reading:

• on Buffett and the economy;
• on moral hazards;
• on the inflationary repercussions of higher energy prices;
• on a more protracted downturn in housing;
• on more credit writedowns;
• on hedge funds and their impact on commodities; and
• on Wall Street's role on derivative sales.

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Red Flag Emerging?

7:39 a.m. EDT

A potential technical red flag has emerged.

If you look at the chart below, there is a potential bearish divergence between the number of stocks making lower 52-week highs and the S&P 500, which is making higher highs.

S&P 500 New 52-Week Highs

Click here for larger image.

Source: Bloomberg

One explanation could be that as energy/commodity stocks have pulled back modestly, financials have picked up the slack.

Nevertheless, let's keep an idea of this development.

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What If Oil Suddenly Dropped by $10?

8:54 a.m. EDT

Maybe it was the pepperoni pizza I ate before bed, but I had a very vivid dream last night, and it was about the price of oil.

Like Dorothy in The Wizard of Oz, I was caught in a vortex, unable to control my fall.

The price of oil dropped by $10 per barrel in the dream, and I was flying around aimlessly, confused about the broader market implications.

My conclusions would be:

• It might be negative for the markets as the overbought market leaders (energy, materials et al.) would plummet.
• It could happen just when it's least expected.
• I would be off the cold linoleum floor (and no longer drinking cheap tequila).

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Doug Kass is the author of The Edge, a blog on RealMoney Silver that features real-time shorting opportunities on the market.