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Are the Equity Markets Headed For a Fall?

On this two year anniversary of the great bull market, one has to ask if it is about to die of old age. Take a look at the chart below showing investor sentiment. The last time it was this high was the end of 2007, not exactly a great time to load the boat with equities.

I suspect that if you are not at a top in the market now, the end is not far off. Not only is the bull market two years old, the current leg is rapidly approaching six months. That means that we have not pierced the 50 day moving average in the S&P 500 in any meaningful way since August.

The rumbling that not all is well in River City is getting louder by the day. We are now seeing much more volume on down days than up days in the stock market, a reliable indicator that the smart money is departing for sunnier climes. Commodities look like they are giving up the ghost for the time being, with lead metal copper down by 8.5% in a month. They don’t say that the red metal has a PhD in economics for nothing.

Even more concerning is the recent strength in the long bond that could be the beginning of a head and shoulders bottom in that market. Is this the warm up for a flight to safety bid? Is it relieved that PIMCO’s Bill Gross has finally completed his gargantuan sales of bonds? Is the European debt crisis about to rear its ugly head once again? Is the dead hand of high oil prices finally being felt by the market? Only time will tell.

I think the only thing that could rescue the global equity markets at this point is to sudden demise of one Colonel Muammar Khadafy. The disappearance of the Libyan dictator would drop oil prices by $20 in a heartbeat, and send equities soaring, at least for a little while. Remember, he is only president for life. Maybe someone should lend him one of those Toyota’s with the sticky floor mats?

US Investor Sentiment

SPX

By. Mad Hedge Fund Trader


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