We're Still Suspicious of the Long

 | Oct 05, 2011 | 12:13 PM EDT
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What happens when the evidence is irrefutable? What happens when it is so clear that things are getting better in this country and that staying as gloomy as you can only works in the event of a collapse of Europe?

That's what the market is trying to figure out right now. The market knows that any rally is "phony" vs. what will happen with French banks or Greek bonds or Italian budgets, meaning that we could be having 3% GDP growth and 8% jobless and we would still be suspicious of the long side.

But investors are desperate to figure out if a bear market can be JUSTIFIED if employment is picking up and retail sales are strong and getting stronger because gasoline is coming down. People are trying to figure out how negative to be if auto sales are topping 13 million units and Ford (F) is not going out on strike.

Can you still short every tick?

Can industrial stocks go up for three days in a row instead of one? I think I have the answer. From this level, perhaps yes, given that the quarterly reports are almost upon us and the number of preannounced shortfalls is small and tends to be clustered in the poor execution category.

You want to take Ingersoll Rand's (IR) view or the view of Caterpillar (CAT)? How about Advanced Micro (AMD) vs. Arm Holdings (ARMH) and Qualcomm (QCOM)? Do you 'trust" the preannouncements so far to be indicative of anything other than thumb sucking?

Do you trust the slimmed-down hiring of Best Buy (BBY) or the robust hiring of Kohl's (KSS) and Macy's (M)?

I rest my case.

Now, why not believe in more than a two- or three-day rally, especially given that sentiment is at extremes with the Investors Intelligence Poll showing 34% bulls and 45% bears, the lowest bullish reading in 13 months and the highest bearish reading since the bottom in March of 2009?

Because in the end we will get a real bad piece of European news and a political slap around the head by the end of day three. I cannot recall a stretch since this crisis began where these politicians shut their traps -- here and abroad -- and the Europeans showed any resolve.

But, let me say this very clearly. If they did show resolve and we did see the Citigroup (C) plan -- banks getting big stakes from government entities to backstop faltering sovereign bonds -- we would have a run from here.

The issue? That's an "if" that has been a real bad bet and I don't see any reason why it would suddenly be a good one.

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