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Looking to Short a Market Near All-Time Highs? Not So Fast Says S&P’s Stovall

Looking to Short a Market Near All-Time Highs? Not So Fast Says S&P’s Stovall

The market is stuck with competing feedback loops. On the bearish side, record fund inflows suggest individual investors have gone all-in on a stock market rally. Being part of consensus thinking seldom pays when it comes to investing. Then again, institutional investors have been betting against stocks because of "mom and pop" all year, and its been a losing trade. Something's gotta give.

Sam Stovall of S&P Capital IQ isn't prepared to bet against stocks here. In the attached clip, Stovall notes that November through April has been the strongest six months of the year on average for almost any timeframe historically. "Investors lean cyclically," pushing money into consumer discretionary and industrial material stocks while defensive sectors like big pharma tend to underperform.

It's always hard to make an argument for investing based on the calender with a straight face. That's especially true in 2013 after those who sold in May and went away missed a 10% rally in the S&P 500 (^GSPC). Investing on things that happen on average is just as bad a money management strategy as using the calender.

Stovall is left with a cautious sense of optimism. Corrections are supposed to happen at least once a year, and we're well overdue for a drop of 5 - 10%. Stovall takes it as a matter of market law. "It's not as if (corrections) have been repealed. Maybe they've just been delayed."

The wait for a market correction stands at 25 months and counting. Whether or not you're inclined to chase stocks higher, Stovall cautions against those thinking of going short the market just because Main Street is buying, stating after all, "'tis the season not to get too bearish."