We hate to be
in the midst of a roaring bull market that has taken US stocks to five-year highs, but the arguments for a pullback or outright correction are gaining steam. Here’s the bears’ theory of the case:
points out, citing Bloomberg data, that in the past two years stocks have declined soon after short selling fell to such low levels - 0.4% in March 2011 and 3.3% in March 2012. Short sales declined to just 5.6% of shares trading in February.
: When corporate execs sell in droves, that’s not generally considered a bullish signal. According to data released by Argus Research and cited by
last month, insider selling outpaced insider buying by a ratio of 9.2-to-1.
Bull Market Cycles
: Market analyst
thinks market rallies, which since 1962 have tended to last four years, follow predictable patterns. (The current bull market run is the
in history.) As you can see from the chart courtesy of
at CNNMoney, we are in the exuberance phase of the stock price run-up—and maybe have another couple of years before we tank and start over, according to Binrinyi.
Margin and earnings:
recently posted a series of interesting charts outlining the stock market's current vulnerabilities. Here are two of the them, underscoring the rising level of stock purchases with borrowed money (on margin), and deteriorating corporate earnings expectations.
Finally, Bespoke Investment Group
that the breadth of the rally, measured by stocks trading above their 50-day moving averages, is weakening. Some 73% of stocks in the S&P 500 index are currently above their 50-day moving averages, vs. 90% of stocks back in January.
But then of course there are the bulls: Paul Lim at the New York Times has
a good overview
of their case heading into Q2.
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The bears' case for a coming stock market correction
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