Thoughts

Chicago PMI and Stock Weakness

When the PMI exceeds 65 for the first time in a cycle, stocks tend to pull back.

Stocks today are slightly lower despite the highest (68.6) Chicago PMI number in 12 and a half years and a jobless-claims print below 400,000.

There is an historic precedent for equity weakness following similar prints. In looking back at the six times the Chicago PMI exceeded 65 for the first time in a cycle and since 1972, all one-month (-0.4%), three-month (-4.3%) and six-month (-2.7%) periods following these readings have averaged negative returns on the S&P 500 index. While the investment returns were skewed by the Crash of 1987, the median returns were not very good either.

Run, don't walk, to read Peter Schiff's piece on the inevitability of lower home prices in the Wall Street Journal.

The short interest as a percentage of the float on the S&P 500 has dropped to the lowest level in four years.

While the majority of strategists, money managers and commentators are bullish, it's interesting to note, according to Bespoke, that few are bearish.

The short side has become a lonely place.

First Trust Advisors Chief Economist Brian Wesbury got it right in 2010.

Credit Suisse lowers its fourth-quarter estimates for Morgan Stanley and Goldman Sachs.

Move over Iomegans, let the Shen Zhous take over.