I would like to touch on two topics in this weeks summary: first being the global growth outlook judged

by stock markets of leading economies; and second being the internals and breadth of the S&P 500. Germany & South Korea Sell in May and go away is the famous quote about stock markets seasonality as it looks to be holding some wisdom this year. Consider that S&P 500 has topped on 02nd of May, on the first trading day of the month, at 1370 and so far is down approximately 9 percent, while the more cyclical oriented Dow Transportation is down almost 13%. While the the market might be worried about the US GDP coming close to stall speed, the action elsewhere might be more important. The reason I say this is because US experienced an average growth period in 2009 and 2010, so any stop and go swings are to be expected within the growth rates. What we do not want to see is a major slowdown in powerhouse economies which propelled the recovery since 2009 in the first place. Some of these include Germany - European powerhouse exporter; and the South Korea - Asian powerhouse exporter. I would also like to think that the equity markets of these two countries tend to be a great leading indicator of the global economy.

Looking at the chart of the Xetra DAX 30 from Germany, we notice quite a few warning technical signals. First - the trend line that has been in place since March 2009 lows has now been broken powerfully; second - the price is now trading well below the 200 day moving average for the first time since July 2009; and third the peak in late June and early July is the first weekly lower high since the uptrend began in March 2009.
http://theshortsideoong.blogspot.com/ 1

The whole philosophy behind following the DAX 30 and its companies comes from a view that the German economy is one of the main barometers to global economic cycles. Therefore, seeing euphoria of confidence close to all time highs not seen since 1992 in the German business conditions survey of 7,000 CEOs could be a little worrying if one is a contrarian. The question now stands as to weather this is the peak in the economic cycle, similar to the ones we have seen in 1998, 2000 and famously in 2007.

http://theshortsideoong.blogspot.com/

Looking at the chart of the KOSPI Composite fromSouth Korea, we notice a similar setup to the DAX, but as if its back in time by a week or so. Warning signals show that first - the trend line that has been in place since March 2009 lows holding but being attacked at present; second - the price is trading above the 200 day moving average but its also being attacked at present; and third - the peak in late June and early July is the first weekly lower high since the uptrend began in March 2009.

South Korean companies are also a great barometers to global economic cycles, and in recent times a very strong clue on the state and health of the Chinese economy. South Korean economy is highly cyclical with exports accounting for more than 50% of the GDP, with one quarter of all exports going to China. Therefore, a breakdown in KOSPI would be an early warning signal that all is not good in the worlds main growth engine.
http://theshortsideoong.blogspot.com/ 3

S&P 500 Breadth Are we in a bear market? That is the main question everyone is asking each other or even themselves, but remember you shouldn't be asking a barber if you need a haircut. Lets have a look at the internals of the S&P 500:

It has been a known fact for quite some time that the rally since August 2010 intermediate low has shown less and less stocks participation with highs in November 2010, February 2011 and May 2011 all showing a declining number of 52 week new highs.

However, declining 52 week new highs are just a warning signal of a potential correction or bear market ahead, as the rally is not as broad as it should be. On the other hand, the increase 52 week new lows is a signal that the correction or a bear market is close as hand as bears take over the main trend from the bulls. We could be at the early stages of this, with at least a potentially strong correction at hand.
http://theshortsideoong.blogspot.com/ 4

The percentage number of stocks trading above their respective 200 day moving average within the S&P 500 stands at about 36%, which is signal of weak breadth. Bulls will point that this reading is also quite oversold, however we can remain oversold for a decent amount of time during downtrends.

The cumulative advance decline line has now shown any divergences with the market as it made new highs on the recent peak and it remains above its bullish trend-line from March 2009. This indicator needs to be monitored closely, because a break of this line could signal a breakdown in breadth.
http://theshortsideoong.blogspot.com/ 5

Moving away from the medium term perspective towards the short term, we can see that the percentage of stocks above the 10 day moving average is now reading one of the lowest readings since the flash crash in May 2010. This indicator is a good proxy for early signals of short term rallies, which we are now overdue for.

The percentage of stocks that are oversold (RSI below 30) within the S&P 500 are showing the highest readings since the bull market began in March 2009. While this could be seen as a favorable reading for a short term bounce, it is also a sign that the bulls are handing over a trend towards the bears. During bull markets, majority of the stocks become overbought on regular basis - that is what bull markets are all about. However, during bear market, stocks become oversold.

http://theshortsideoong.blogspot.com/

With a break of 1,250 on the S&P 500 we are obviously signaling a correction and a downtrend as we are now making lower lows and lower highs. The question now is: is this a start of a small bear (strong correction and a slowdown) or big bear (serve bear market with a recession)? Note: Please do not think that I would blindly just short stocks here, even though it might have some merits to short term traders. My reasoning looks towards Fed interference where QE3 could be implemented. Therefore, short sellers will be fighting the Fed once again, just like in July 2010. Also to note is that markets are extremely oversold in the short term, where we should expect a strong bounce. Finally, some wisdom to consider this week: "It is better to be out wishing you were in, than in wishing you were out." ~ Albert W. Thomas "Don't ask the barber whether you need a haircut." ~ Daniel S. Greenberg

http://theshortsideoong.blogspot.com/

Publication Information
The information, opinions, and material displayed and presented on the http://theshortsideoong.blogspot.com/ blog website and in this weekly sentiment newsletter are provided for informational purposes only and are not to be used as or considered an offer or a solicitation to sell or buy securities, investment products, or other nancial instruments, nor to constitute any advice or recommendation with respect to such securities, investment products, or other nancial instruments. The information, opinions, and material displayed and presented by The Short Side Of Long blog are prepared for free use without regard to the specic investment objectives, nancial situation, and particular needs of any individual person or corporate entity who may receive or view this information. Before making any investments or entering into any transaction in relation to any securities mentioned or referenced by The Short Side Of Long, you agree to independently evaluate an investment and/or consult an independent nancial adviser who is licensed and registered in both the jurisdiction where you reside and the jurisdiction in which said securities are being offered. The information and data included in this newsletter and on the http://theshortsideoong.blogspot.com/ blog website have been compiled from a variety of sources and are subject to change without notice. The Short Side Of Long blog makes no warranties or representations whatsoever regarding the quality, content, completeness, or adequacy of such information and data. If misleading, inaccurate or otherwise inappropriate information is brought to our attention, a reasonable effort will be made to x or remove it. Please contact us at theshortsideoong@gmail.com with any concerns. By using this newsletter or visiting out blog at http://theshortsideoong.blogspot.com, you assume all risks associated with the use of this site and publication including any risk to your computer, software or data being damaged by any virus, software, or any other le that might be transmitted or activated via our blog web page or your access to it. The Short Side Of Long shall not be liable for any damages of any kind resulting from the use or misuse of the information contained in our web pages and publication. The views and opinions of authors expressed herein do not necessarily state or reect those of The Short Side Of Long blog, and shall not be used for advertising or product endorsement purposes.

http://theshortsideoong.blogspot.com/