11 Reasons The Bears Can't Be Too Happy Right Now
It's a dumb idea to stay negative on the U.S. economy and/or stock market for long. Sure, it can pay to get negative for a while, but overstaying your welcome as a "Negative Nancy" can prove problematic in this business.
Of course, there are those who take the opposite view, and in short, this is what makes a market. It is worth noting that after two devastating bear markets within a nine-year span between 2000 and 2008, the perma-bear camp saw dramatic increases in memberships. This group is continuing to expand in the current environment.
Everywhere you turn today, you will find an article about bubbles forming, overvaluations, macro concerns, the next crisis, etc. All of which draw the same conclusion: Investors will see a repeat of the 2008 Credit Crisis, and stocks will get smoked again.
Frustration May Be Setting In
Let's face it: the bears have had ample opportunities to get something going to the downside this year -- especially lately. Lest we forget, here are a few of the "issues" the bears have tried to take advantage of recently:
- 1. The Fed appears to be saying rates could rise sooner than expected
- 2. Renewed bank problems in Europe (Portugal's Banco Espirito Santo)
- 3. Europe's economy is clearly slowing
- 4. There is a hint of inflation in the air
- 5. Russia's refusal to play nice in Ukraine
- 6. Malaysia Airline MH17 flight shot down by pro-Russian rebels in Ukraine
- 7. Iraq is back in the news
- 8. Russian sanctions could hurt Europe's economy further
- 9. Israel has invaded Gaza again
- 10. The "momentum meltdown" continues to weigh on small-caps
- 11. Yellen's "Irrational Exuberance" moment regarding biotechs, internet and social media names
During a weak market, any of the above could have caused the U.S. stock market to crumble. Yet, after six down days in the last 11 sessions, the S&P 500 stands less than 12 points (or 0.6 percent) from its most recent all-time high set on July 3, 2014.
Bear Arguments Growing in Number
While the bear camp argues that their concerns are growing in number this year, the result of such worry has been anything but profitable. The S&P 500 currently sports a gain of 6.78 percent as of Monday's close, the DJIA is up 2.9 percent and the NASDAQ Composite has advanced 5.94 percent. While the Russell 2000 small-cap index is down 1.4 percent on the year, it is up something on the order of 220 percent for the current bull market.
iShares Russell 2000 ETF (NYSE: IWM) Monthly
It is true that the current divergence between the action seen in the blue chip indices relative to the small-caps can be a problem. Yet the above chart shows that from a long-term perspective, the bulls simply must be given the benefit of the doubt here.
Sure, the index could be rolling over, and if the monthly chart does break below the low seen earlier in the year, one could argue that a long-term downtrend has begun. The bottom line is that the Russell just isn't there yet.
The point on this fine Tuesday is that the bears have got to be getting frustrated at this stage of the game. With short interest at high levels, further advances in the S&P could cause the Johnny-come-lately bears to throw in the towel.
Should this happen, stocks could easily experience a "blow off" to the upside. This type of action has occurred many times throughout history. Put simply, it is the "blow off" top that could set up the meaningful decline -- or even a bear market -- that so many are calling for.
For now, the bears can't be happy that the economy is growing at a decent clip, earnings are at all-time highs, interest rates remain low and inflation is not a concern.
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