| It's important to point out that broad U.S. and international stock indexes broke above their recent highs last month, triggering a wholesale squeeze by short-sellers. The run-up in short positions in February and early March represented one of the biggest efforts by short-sellers to make a bundle ahead of a market decline; that never happened. Once again, markets bounced back just like they did last summer following a decline of 9% from peak-to-trough in June and early July. Stocks have been red-hot over the last 13 months with barely a 10% decline from their recent highs. What Does it All Mean?It's sometimes the case that, as short-sellers exit the market or significantly reduce their shorts, stocks might have only one direction to go next – down. Of course, I have my doubts… This market has proven me wrong over the last year with massive gains amid a successfully orchestrated U.S. and foreign government bailout, courtesy of printing presses at central banks. With credit markets pretty much healed at this point and banks fudging their accounting courtesy of GAAP changes last May, investors have increasingly allocated capital to stocks. Imagine, for example, what happens if investors lose their love affair for bond funds and opt for stock funds again? Bond funds have seen more than $200 billion of inflows over the last 12 months, compared to barely a dollar of inflows or flat inflows for equity funds. Bill Fleckenstein, probably one of the best short-sellers along with Jim Chanos and David Rocker, recently admitted to bailing out of his short positions, "I'm not short because for the most part I can't find ideas that seem to be working and I think other people might be in the same camp." After maintaining a short bias for 12 long years, including some huge gains from 2000 to 2002 and especially from late 2007 to early 2009, Fleckenstein (Fleckenstein Capital in Seattle) closed- out his shorts last year. Well, that might be a signal for contrarians or bears. Through yesterday, the stock market has gone 42 days without suffering a 1%-or-higher loss in a single trading session. But the bears are now in hibernation and more bulls might join the rally. Still, you have to wonder how long this can continue… Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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