Statistical trivia has been garnering more than its fair share of attention lately, suggesting that stocks may be ready to head lower for a while, if perhaps only out of boredom. Yesterday’s selloff, half of which was recouped in the final half-hour by a relatively docile short squeeze, was attributed to energy sector weakness. Specifically, there was word of rising oil inventories – a red herring that we stopped paying attention to long ago.  Weren’t these inventories supposedly tightening just a day earlier, when crude futures hit a seven-month high? No matter. Chevron and Exxon Mobil were getting whacked, and that fact alone was enough to sap the inflation mindset so crucial to Wall Street’s scenario for economic recovery.

From a technical standpoint, recent highs in the broad averages have hit some key thresholds. Our friend Peter Eliades notes that, for one, the weekly bars of the S&P Cash Index are rubbing up against at 189-week cycle, portending a potentially important trend change. And the ever-astute Garrett Jones finds on the same chart a trend line going back to 1990-1994 that was kissed by yesterday’s highs. And let’s not overlook a Bradley turn date on June 3.  Bradley, to remind you, saw planetary alignments as an excellent timing indicator. Sounds crazy, we know, but the guy was right so often that his methods are more popular now than ever.

Out of Their Minds?

Technical runes aside, we think any investor who sees value in U.S. stocks right now must be out of his mind. There is so much economic trouble in the pipeline that stocks would be a lousy buy at half their current prices.  We don’t begrudge investors a little comic relief now and then, but they had better be storing up a year’s worth of belly laughs, since the next leg down is going to wipe the smirk from a lot of bulls’ faces. We suspect the implied cascade of stocks will come later in the summer, when Wall Street’s kids are minding the store. It’ll be a relief to see the markets tracking reality once again rather than the ridiculous notion that recovery can come at all for an economy that not only has lost its manufacturing base, but its smoke-and-mirrors wunderkind, the banking sector. What’s left?  Starbucks, manicure salons and Hollywood movies?

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