CNBC: Time to Get Short the Market?

George25

Time to Get Short the Market?
Wed 22 Feb 12 | 05:09 PM ET

Transcript:
trade here. s&p 500 up about 8% this year. best level since june of 2008. what's the smart money doing now? doug cass is joining us now, fast money contributor. he is back to his largest position of the year. doug, you say that being short is the hardest trade. why do it right now? good morning. good evening, mel. hi. let me break it down to technical and fundamental. six weeks ago i said the s&p could approach the 2007 high. investor sentiment had been down back then. retail cash has come in. hedge funds expanded in the long exposures. it rallies to buy stocks when 85% of the s&p trades above the moving average which is the case today. take the opposite tact, only -- and there's been five prior times this has happened since 2004 on average. secondly we've had a sharply advancing market. we must be alert to divergence. there are good advances. there are bad advances. i see this one as bad. i have to take issue with something j.j. said last night. we're seeing on each leg higher in stock prices. that's a bad advance. we're also seeing substantially lower highs. the advance is becoming more selective. it's maturing. and finally we have this lagging transport index. and as you mention the financials are weakening and closed badly. this is something cortez has highlighted recently. to me all these observations are part of an advancing market. as far as the transports it makes a lot of sense as we watched oil move back up towards that 105 level. i want to address something else that you're talking about with something that j.j. brought up. i didn't get a chance to hear that. but volume. i'm not as concerned in volume as everyone else seems to be because of the fact that i see volume in the option markets that just continues to increase every single day. so we've watched this over the last year and a half or two years where every day we hear about this or somebody bring up by the volumes are light on the nyse. they've gone away from the nyse. and we're seeing more in the derivatives market. add up to something people putting too much weight on this. they've talked about the lack of volume on this. i don't dismiss the importance of volume. there you go. all right. stated simply. you've been bringing up to your clients every day, the technical reformation that was popularized back in the 90s. how reliable is that as an indicator of a top? it seems to be a little sketchy. i don't -- i bring it up for an informative reasons. i don't believe in that technical. you brought it up four times in the last week. ronnie, i believe in fundamentals. we haven't talked yet about the fundamentals. i've been watching dr. jeremy siegel over the last week on cnbc and for his prognostication to occur, for markets to rally to all time highs, a lot has to go right. it's going to require reviable spirits. and striding valuations back to over 15 times. it's not an impossible feat. but given the last financial cycle, given our balances, it's not likely based on what has occurred both economically and geopolitically in the past couple weeks. good to speak with you. doug cass of seabreeze. you agree with doug? i do. it's not like we haven't talked about this. we said starting late fall given what was transpiring, there was no reason to believe there was no trend up to 1350, 1370 may highs. now it's really incumbent to really ratchet it through. and given the action the last couple days, i'm not sure that's going to happen. i don't think the world's coming to an end, but we can trade back down to 13 and a quarter. but there are levels that work. given a lot of things doug just talked about, i think it's pretty -- i said it last night. for the first time in a long time i think there are opportunities to trade from the short side with a defined stop. karen, does it matter to you that there is declining volume as we reach these newer highs? or do you agree with pete the volume is there just not on the exchange. it's not where it's measured now. i have no faith in my ability to pick the market in the very short-term and be in and out of things. so i try not to worry about it and factor it in. i don't factor it in to our overall valuation. i just can't know. one thing i found curious about what doug said he threw against the wall all these big items. the fiscal imbalances, structural imbalances. a lot which i think will be worked down. but then 3% to 5% -- if you're talking about huge equilibrium, you should worry about a bigger than that. the market looks better, acts better and doesn't necessarily underscore the things he was talking about. but longer term i think the case is more positive than people give it credit for. i don't think necessarily he's saying longer term. he's saying that for now there's going to be 3 to 5 -- where trading he was talking about what's happening now. and doesn't mean that those big things -- but they're not the reason the market won't correct. but we're not going to correct based on the budget deficit 3% to 5%. not that doug needs me to defend him, but if you listen, watch him, read him, twitter, his calls have been spot on. the fact he's saying now, i think you'd be foolish not to listen. doesn't mean he's going to be right but you have to listen. that's why we bring these voices in from the outside. mike khouw, what do you have to say? there's two interesting things. when you look at volatility which was a measure, if you will, of premium to insure your portfolio is steep right now. which suggests although the market's been relatively calm, there is expectation that volatility is going to pick up. when does it pick up typically on declines. the other thing i would notice is open interest in the puts in iyt which is the transports etf has been going up by those who subscribe to doubt theory. that that also might be a little that that also might be a little bit bearish. all right. let's move on and hit the playbook at this base. do you think the vix is playing along? does it make sense where the vix is headed now? it is not signaling to us there's any panic in the markets. i wouldn't be concerned unless it got upwards of 23, 24, 25. somewhere near the 200 moving average. i would point out with all of this increase z volume all the time, today was a good example. most of these have been being bought. so in other words, it is holding people's hands back, putting them in their pockets. that's why we're seeing a market choppy or moving to the up side.

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