Trader's Outlook: Look to short rallies again

The markets did indeed rally big time off the capitulatory lows from March. And now with the broader markets up 25% plus, the rally shows signs of fatigue. I've been talking on Happy Hour about how I'd be looking to once again, slowly but surely, short the market above 8000. I wouldn't rush into the trade right now though, in large part because the trillions of worthless dollars that the government has pumped into the banking system and into corporate America is indeed going to float the economy and markets for a brief period of time.

Any acceleration in the economy would likely fade sooner rather than later, as these huge dollars now working through the system will eventually end up more politicized than profit-seeking. And since profits are the only things that make stocks go up, well, that ain't bullish over the intermediate term. Whether the market starts to discount that capital politicization earlier rather than later is, of course, the $64,000 question for traders.

With the market at 7900, it looks like we're mostly back in no-man's land. Many stocks are up double -- GE and Citigroup, for example -- which in large part simply means the stocks are no longer discounting imminent bankruptcy. GE and C are both dependent upon the government providing welfare loans to the companies are below market rates (C of course has gotten tens of billions of dollars in outright welfare infusions for its shareholders). And they're both now much more beholden to political whims of the government than they ever have been before. The government's given shareholders of C billions more than the equity of the company is worth. Even though the market cap at the time was less than the amount of welfare money the government pumped in. That means, as we all can tell from headlines such as from today's WSJ about yet another giant corporation that's no longer in the profit-seeking business, "Treasury Pressures Chrysler, Fiat in Meetings".

I'd look to short the market on rallies now. As I mentioned on Friday's show, if the market rallies to 8500, I'll be sounding the "Get Shorty" alarm bells. Not there yet. And not low enough to start scaling into longs given the worsening intermediate economic outlook.  And we'll probably be sticking with tech like Google, Apple and Rimm, all of which are up huge since we added them to the newsletter late last year.  We'll likely be staying far away from the financials even then.  Why bet on government policies working out in your favor?

Put the bat on the shoulder and wait for the next pitch. In the meantime, how about the nearly 100,000 views and 1000+ comments on YouTube about my back and forth with Jon Stewart from Friday's Happy Hour. Can post-partisan awareness go mainstream?!

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