This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Kass: Dreaded Triple Top Approaching?

This column originally appeared on Real Money Pro at 7:25 a.m. EDT on Aug 14.

NEW YORK (Real Money) -- What I learned in my investment career is market participants prefer the comfort of crowds rather than the company of the remnants.

Investors and traders, as demonstrated in recent years, seemingly prefer to buy strength and sell weakness than to address, anticipate and prepare for an inflection point or change in market direction.

That helps to explain the growing view in the business media and in other outlets that the recent low-volume market rise has been greeted with growing optimism by relatively complacent (accompanied by a 14.0 VIX) players.

That said, this chart of the S&P Index suggests (to this observer) that a possible triple top in the market might be in formation.

S&P 500 Index, Source: Bloomberg

But technical discovery and technical analysis is not my market weather vane. It is the fundamentals that move me.

And on the fundamental score, the outlook is stormy, with slowing global economic growth ignored by the hope of more Band-Aid policy initiatives (a global easing put) and the prospects that our leaders in Washington will begin to behave like adults as we approach the fiscal cliff.

Five Near-Term Market Challenges That Suggest a Top Is Near

  • The selection of Paul Ryan may be viewed as a negative regarding the implementation of more monetary easing and based on the growing enmity between our political parties that could steepen the fiscal cliff. The good news is that, unlike the 2008 election in which arguably the Republican ticket was seen as a Saturday Night Live parody, Ryan's candidacy will likely produce a more serious policy dialogue between the Republicans and Democrats than four years ago. In the interest of full disclosure, while I am a Democrat and disagree with his politics, I admire Ryan's rigor and commitment to policy. But there are three reasons I see downside to Romney's decision to pick Ryan, all presenting serious but different short-term market challenges. Ryan's extremely conservative views http://fivethirtyeight.blogs.nytimes.com/ and opinion of the Federal Reserve's mandate (and the waning influence of its easing policy) will likely steepen the fiscal cliff given the increasing ideological schism and division between the two parties. Moreover, Ryan's presence could weigh on and reduce the probability that the Federal Reserve will ease further in the weeks ahead. Ryan has previously stated that he would replace Fed Chairman Bernanke at the end of his term in 2014. Besides the stark differences in policy, Paul Ryan's austere budget views could raise concerns about the trajectory of domestic economic growth in 2013.
  • Gov. Romney remains well behind in the polls. Generally speaking, the Republican candidate is seen, by most investors, as a business and market positive relative to the Democratic candidate. While it is still early in the election process, the initial polls suggest the Ryan decision has not positively impacted Romney's election prospects as voters appear to have shown little enthusiasm for his pick. On Intrade, Obama stands at 56.6% compared with 58% last week. A USA Today poll found "42 percent saying Ryan, a Wisconsin Republican and chairman of the House Budget Committee, was either a fair or poor choice as Romney's running mate, while 39 percent called him an excellent or pretty good pick." This negative rating was the highest since a Harris Poll in 1988 followed the announcement of Dan Quayle's V.P. candidacy. An ABC/Washington post poll found 38% had a favorable opinion of Congressman Ryan, 33% held an unfavorable view and 30% expressed no opinion.
  • Europe continues to contract despite Mario Draghi's jawboning. Not only is Europe slipping more rapidly into a deeper recession, but the implementation of serious and effective longer-term policy responses remain uncertain in the eurozone. Band-Aid policy measures remain the operative palliative and will likely be for some time to come. A German court is scheduled to decide on the constitutionality of the ESM on Sept. 12. But the Dow Jones News Service reported Monday that the German Constitutional Court has instituted a new lawsuit which could postpone that decision.
  • China's landing might be harder than previously thought. This important regional economic growth driver continues to suffer from disappointing growth. Friday's report of punk Chinese exports and imports was particularly worrisome.
  • Geopolitical risks are rising and so are energy prices. The specter of increased hostilities in the Middle East served to raise crude oil prices recently. The price of gasoline has risen by $0.18 in the last two weeks alone.

So, rather than grow more constructive with higher prices (like many), I grow more cautious based principally on the blurring in the demarcation between economic progress and fantasy as well as the political and geopolitical issues raised above.

Price is what you pay, value is what you get.

I remain net short.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 +2.54 0.14%
NASDAQ 4,095.5160 +9.2910 0.23%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs