Is the Market Running Out of Baby Seals?

Friday’s month-end mark-up rally was rather weak, don’t you think? The elves had to struggle hard to get the S&P 500 above 1400, and couldn’t keep the Dow from turning red.

And since every trader knows about this year’s “First Day of the Month Pop” pattern, you would think at least some of them would want to get long ahead of it. Especially that we now have evidence that new retail money has been coming in.

I think a lot of traders came to the same conclusion that I have and decided to exit before the bell. If you look at a minute chart of SPY for Friday afternoon, you will see the sell-off, and then the elves coming in to save the day in a surge of volume that dwarfed the rest of the day’s action.

Jim Cramer was mystified by the action in tech stocks Friday afternoon: “Tech Should Be Dead, but It Won’t Lie Down“. I think tech is staying strong while the S&P 500 is rolling over because the retail baby seals are piling into tech. Who else would be buying tech here? What pro would buy tech ahead of the standard summer plunge in tech stocks?

Both retail investors and foreigners have a reputation for coming into our market at the top and exiting at the bottom. We know that people who fled the market at the bottom in March came back in April, and we know about the Sovereign Wealth Funds eagerly lapping up freshly-printed shares of soon-to-be-gone banks. So, that’s pretty good evidence of a top.

But I also think that the retail investors, the baby seals, are falling in number. Why? Because of the last jobs report. While it was ostensibly a “good” report, only the paid shills tout it. Not even Larry Kudlow with his idiotic economic analysis of late mentions it. That jobs report was widely ridiculed, and retail investors do indeed read Barron’s and they read Alan Abelson’s account of the BS coming out of the BLS. And I think the jig is up.

The propaganda blitz to suck in the naive investors has worked only too well producing an astounding bear-market rally that has even caused the most hard-core bears to doubt their convictions. But even retail investors will only swallow so much. I think that we are seeing the last wave of baby seals flopping around on the ice. If the clubbing looks good Monday morning, I will probably fulfill my quota, completing my 200% short position with my remaining cash.

The economy is clearly slowing and everybody knows it. No matter what the official reports say, when Americans are forced to eat Spam (sales are up 10%), and ride trains instead of airplanes like it was 1908 instead of 2008, and save their $600 tax-rebate checks so that they can heat their homes this winter, it’s not going to be easy to convince them to buy more stock.

The 20% price increases that we saw from Dow Chemical and others last week show that inflation is officially out of control, etc., etc., etc.

The wheels are coming off, and I am betting the farm that this is an astounding, and just maybe, historic shorting opportunity.