Why the â€˜big top’ is already in for this stock market

The bears are starting to pop up everywhere. They're gearing up for the summer, rolling around in the meadow, basking in the glow of a never-ending stream of Fed speakers who keep telling this market that a rate hike or two is on the cards.

Any attack from these bears will probably be mild, rather than wild.

"One just cannot help feeling that these markets are beginning to look very heavy, and unless there is a raft of M&A activity, a modest correction cannot be ruled out this summer," says Panmure Golden's David Buik, in a note to clients.

Things are looking a little perkier this morning, even if there isn't much behind the gains, apart from some dollar strength.

The last seven days, the S&P 500 has gone down, up, down, up, down up, down. I can almost sense a pattern.
— Eddy Elfenbein (@EddyElfenbein) May 24, 2016 ^[1]

Ready to beat back the bearish attitudes out there? Check out this list of IPOs set to hit the market this summer. Note how many there were at the start of the year. Late to the party? We'll see:

@SoberLook The IPO market has recently picked up: 7 IPOs are expected to list in the US this week, raising $1.9bn pic.twitter.com/yseW93aBgI ^[2]^[3]
— Jake Badalamenti (@JmBadalamenti) May 24, 2016 ^[4]

Our call of the day counts the signs of a market top and points to a technical pattern that is being spotted all over the place right now. And our chart of the day is one for the bears, if you think politics really will lay out the path for stocks in the coming year.

Also read: What's next for the longest stock market correction in history ^[5]

Key market gauges

Good day for a market top? Maybe. Futures on the Dow YMM6, +0.00%^[6] and the S&P ESM6, -0.01%^[7] are pointing to a rally at the start, and it's not real easy to see why. Oil prices ^[8] CLN6, +1.30%^[9] are lower again, even as Citi says the worst is over ^[10] for the beaten-down market. The dollar ^[11] USDJPY, +0.03%^[12] is up.

Asia ^[13] ADOW, -0.80%^[14] saw a down day across the board, which was blamed on weak commodities and uncertainty over Fed rate-hike plans. Europe ^[15] SXXP, +2.21%^[16] turned higher midmorning, getting a lift from banks.

Gold ^[17] GCM6, -0.10%^[18] is setting up for a fifth session of losses. But it's still nowhere near the $1,000 that Citi thinks could happen ^[19].

The chart

Who do equity markets like better when it comes to U.S. presidents? Based on history, it seems Democratic presidents get more of a thumbs-up than Republican ones, notes Bespoke Investments in a blog post.

"In addition, there has been an argument made that Clinton (presumed Democratic presidential candidate Hillary) would represent a more predictable choice for the economy and markets over Trump," notes Bespoke.

That's not saying Donald Trump doesn't have a lot of fans out there — Clinton's lead appears to be paring ^[20] against the likely Republican candidate.

But take a look at Bespoke's chart. It plots out the odds for a Democratic victory since the start of 2016, and overlays them with the S&P 500:

Up until recently, markets appeared to be closely tracking the chances of a Democratic presidential win — rising as the odds got better, and vice-versa.

As things have tightened up between the candidates, that correlation has slacked off a bit. And judging by this chart, it's a good thing, or we could be looking at a "Clinton crash" for stocks, as Bespoke puts it. Read the whole thing here.^[21]

Check out 7 signs a bear market is coming ^[22], while you're at it.

The call

"It is fashionable to be a bear on equities," says Brenda Kelly, head analyst at London Capital Group, who says "bearish is the new black."

She sees a few signs that a "big top" may be in for stocks — such as Goldman Sachs moving neutral on stocks last week ^[23]. Then she's eyeing technicals that also suggest a top, such as this head and shoulders pattern — a bearish indicator to many — on the S&P 500:

London Capital Group

"Also, the Fed and all their nonsense about several hikes this year is holding back the 'TINA' (There is no alternative) trade," she says in an email.

Kelly doesn't think June is a done deal at all for a Federal Reserve hike, but says the Fed might move before the U.S. election. That way, "they can row back if Trump Tantrum becomes a reality — so I go with September as the most likely probability," she says.

A further word on tops comes from J. Lyons Fund Management's Dana Lyons, who notes a similar pattern forming for the Rydex Russel Top 50 megacap ETF XLG, +1.29%^[24] :

Triple top or false breakout?

But he says very few triple tops have actually panned out lately, and this ETF could instead be gearing up for a "false breakout." That means new highs before the ultimate top is in, he says. More on his thoughts here ^[25].

Earnings

Toll Brothers TOL, +8.71%^[26] is up 3% premarket after early results ^[27]. Best Buy BBY, -7.42%^[28] is down 4% after weak guidance.

The buzz

The world's largest tobacco companies, including Altria Group, are being sued by the family of Tony Gwynn, a Baseball Hall of Famer who died at 54 from salivary gland cancer ^[29]. Gwynn chewed smokeless tobacco for 31 years, and his family claims those companies misled him about the dangers.

Apple is creeping up again this morning. Shares rose during Monday's session on a bullish iPhone 7 report.^[30]

CF Industries CF, -7.50%^[31] and Dutch rival OCI OCI, +5.49%^[32] called off an $8 billion merger ^[33] after a U.S. government crackdown on tax inversions.

Amazon AMZN, +1.07%^[34] has made a shift on its price-match policy, and will no longer refund customers who bought an item either at the e-commerce site or elsewhere ahead of a sale. But we could see some customers start to cancel and reorder purchases, says Techradar ^[35].

SWIFT says it'll launch a new security program ^[36] aimed at rebuilding its reputation after the Bangladesh Bank heist.

The economy

New home sales for April are due at 10 a.m. Eastern, followed by a reading on first-quarter household debt at 11 a.m. Eastern.

The quote

Getty Images

"He could bankrupt America like he's bankrupted his companies. Ask yourself: How could anybody lose money running a casino? Really." — Hillary Clinton, who launched a verbal attack ^[37] on her Republican rival at the Service Employees International Union's annual convention Monday evening.

She was likely making a veiled reference to the Taj Mahal casino, which went bankrupt in 2004 when owned by Trump.

The stat

$2.1 trillion. That's the Chinese insurance industry's total assets, which have doubled in less than four years, according to The Economist ^[38]. The problem, though, is that insurers have boosted that number via investment products rather than insurance policies. China is cracking down, though. Check out the scary chart on that data here ^[39].

Random reads

Getty Images

High class

The London School of Economics ^[40] has a high-profile visiting professor on board — Angelina Jolie.

Retirement isn't what it's cracked up to be, says David Letterman ^[41].

Redditors ^[42] have shared tips on how to tell when someone comes from money. Using the word "summer" as a verb is one dead giveaway.

TSA's head of security cops Kelly Hoggan ousted over massive delays at U.S. airports ^[43].

Finally, meet the world's hottest horse. (Your correspondent here: He's unreal.)^[44]

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