"I am so bearish, I am growing fur!"

Those words were recently spoken by well known "market wizard", Mark Cook.  Mark doesn't often make a pronouncement like this, so when he does it is best to take note.  I'm not quite growing fur, myself, but I'm getting increasingly bearish; and very bearish over the next 18 months or so.  

Why?  First let me start with the reason Mark Cook is so bearish.  For details, I recommend reading the full article, which you'll find here.

Mark has developed a proprietary indicator that he uses to trade S&P 500 futures (he's on the big contract, so you know this works pretty well).  He calls it the Cook Cumulative Tick indicator, or CCT for short.  Among other things, the CCT measures the flow of bullish vs. bearish volume over time.  In a healthy bull market, we should see heavy buying over long stretches of time.  When these bullish time periods begin to shorten, and bearish times periods lengthen, we know that even if the overall market is rising, it is doing so preciously.  It is ripe for a correction, if not worse.

Here is Mark's assessment of the kind of CCT readings he's been getting lately.  He is seeing a condition in the indicator that "has happened two other times, in March 2000 and December 2007. In each of the following years, the market lost more than 30%."

This is why Mark is now saying, "I am so bearish, I am growing fur!"

In addition to the deterioration of market internals as measured by CCT, here are some other things to consider:

1. Greece just voted to abandon austerity, which will may well lead to loan defaults and an abandonment of the euro. Could Spain be next?  Then Italy?  Span is at 24% unemployment, Italy at 15%.  Think they will want austerity any more than Greece?

2. The stock market has sold off since the ECB announced QE.  Too little, too late, the US market is saying.

3. The global economic outlook for 2015, recently downgraded by the IMF, is bearish which will squash US earnings in the big congloms -- so too the strong dollar -- some of which has already been seen this quarter in companies like MSFT, PG and the big 4 banks.

4. The S&P500 stocks are currently trading at P/E valuations 76% higher than their 10-year averages, with GDP growth only accounting for a sliver of that.

5. Retail investor sentiment recently hit multi-month highs, even as institutional sentiment slid to lows...not a good sign. 

6. The disconnect seen this week in a lousy durable goods number vs. an over the top consumer sentiment number is telling.

7. Typically treasury yields rise and fall with perceived economic outlook.  It's been said that anytime the 10-year yield dips below 3%, economic outlook is full of worry.  The yield today dipped to historic lows, just above 1.7.  That number spells "PANIC."

So there you go.  7, or rather 8, solid reasons to dust off you bear suit.  How do you play it?  In the Dr. Stoxx Options Letter, we are using options to get long gold and volatility, and short the indexes.  If proven, wrong I'll change my thesis.  But for the time being I'm taking precautions against another bear market.