I am continually trying to look for reasons to be bullish. I am driven by price and yes the indices are making new highs. So whats my problem? Well to start, my friend Dennis Gartman, when advocating a position often talks of the fundamentals and the technicals lining up together. I would have to put myself into this camp as well. The underlying rot with this market is well documented yet here we are faced with a potential melt-up dead ahead. I just don't see the fundamentals lining up here with the technicals long term. At least even neutral fundamentals would suffice for me. So I look to my confirmation bag of tricks and in this I look to volume and what I see gives me great cause for concern.
The transports for example are making new highs yet the IYT (chart above) which I follow due to the volume, shows the end of May break out thru 94 was via uninspiring volume. The correction back to $90 was on increased volume. The recent break out thru $96 was again lacking convincing volume. Now you may think I am nitpicking or 'thinking' to much but I just need VOLUME to believe. Now couple this technical analysis with the fact that crude is running then you can see Many of the indices tracking stocks exhibit similar characteristics which are identifiable is you take the time to just compare the breakouts to volume.
To give an example of a breakout I like look at the 2005 time period for the IYT. A big consolidation which broke out to the upside in November that year on healthy volume and good follow thru and never looked back. The Spiders(SPY) Diamonds (DIA) in particular are worrisome. I may be really wrong about this but I feel very comfortable being short financials (SKF), and real estate (SRS), and long crude (USO), gold(GLD), silver(SLV), yen (FXY) and agriculture (DBA).
They say a picture is worth a thousand words so I have included above (top 3 charts) some pictures to show you what is going on in the mortgage backed security market. I have included only AAA paper as it is considered the best. Now what will you do if this happens in any of the broader markets and don't say it can't or it won't because IT HAS and IT WILL again.
Stay sharp, stay focused, do your OWN homework and do not take as gospel anything charlatans like Cramer, Luskin, Kudlow, Pisani et. al. say. Caveat Emptor !! Good luck and good trading to you.