For the second day in a row, the market has had a failed bounce.

Breadth has deteriorated, and the important financial sector has failed to hold on to yesterday morning's conspicuous gains.

These factors might be consequential to market participants in the weeks and months ahead.

As I wrote earlier, I have moved back into a net short exposure.

To me, the "ah ha moment" might be ever closer at hand as the Fed has put itself in a policy corner.

To make matters worse, Chairman Yellen appears to be exacerbating the perception of the  market's short-term risk  by highlighting many of my previously written concerns.

Market participants have already tightened for the Fed as I have written, and with the startling rate rise this week, the seeds of SLOWER economic growth are being sowed.

We can never be sure of market direction. Mr. Market could rally in the last 30 minutes of trading,  but there appears to be a stronger possibility that the market's primary trend may have begun to turn negative. 

The best explanation I have read in terms of my game plan of being more reactionary and less anticipatory in interpreting the market's tea leaves was from one of our subscribers in the Comments Section.

CapitalistGrinch wrote that I have been looking for "poor market action against a backdrop of wider cognition and acknowledgement of cracks in the current economic environment where blind money flows into equities looks to be dwindling."

That sums up my concerns and today's takeaways quite well.

With the market's decline intensifying this afternoon, and with the technicals deteriorating further (e.g., negative breadth expanding, eroding financial sector, etc.), evidence of a true market downtrend is emerging. I am finally seeing share-price confirmation to my negative market thesis.

Considering Mr. Market is less than 3% from all-time highs, I have moved back into a net short position through the purchase of slightly in-the-money S&P 500 June 210 puts (0.57 Delta).

With this strategy, I can define my risk in the event of a sudden reversal higher, but still get exposure to the downside.

I am neither long nor short Tesla Motors (TSLA), but here's what I expect when the electric-car maker reports first-quarter results after the bell:

Foreign exchange headwinds will be sizeable in the quarter, and profits will suffer relative to consensus expectations. I expect a guide-down of 2Q 2015 sales, production and profit forecasts. A $2.5 billion financing could be announced.

If I had to trade the stock, I would be short; however, a large short position precludes me from getting involved again, as one of my basic short-selling tenets is to avoid stocks with short interest is above 7% of float and/or the short interest represents more than two to three days of average daily trading volume.

Estimated First-Quarter Results

• In early April the company projected the delivery of 10.030 units in 1Q 2015, so sales will be in line. Consensus revenue for the quarter is $1.04 billion.
• Not so much for profit (consensus calls for a loss of $0.50 per share), as there will be a large foreign exchange headwind and (to a lesser extent) there was some car price discounting. Consider that the euro and Norwegian krone dropped by 18% and 22%, respectively, year over year. I estimate that Europe accounted for close to 25% and Norway for about 14% of total 2014 revenues. (In theory, this is a more than 600-basis-point hit, but Tesla did raise overseas unit prices and some percentage of the company's costs are priced and sourced in foreign currencies).

Second-Quarter Guidance

• The Street is modeling $1.28 billion in sales on production of approximately 12,350 units. Gross margin is expected to reach 26.9% and estimated loss is about $0.05 per share.
• I estimate that production guidance will be lowered by as much as 1,000 units, which would translate into closer to $1.15 billion in sales. Gross margin would suffer relative to expectations -- between 23% and 24% (or about 300 bps worse than consensus) -- and the overall loss would be wider ($0.30 or more).

Full-Year Guidance

• Management will say that Model X progress is "in line with expectations."
• Though I believe the number is not likely to be reached, Tesla should maintain full-year guidance of 55,000 units. (Remember that the company missed 2014 delivery expectations).
• Tesla bleeds cash and could announce as much as a $2.5 billion financing.

• Mid-morning musings from Sir Arthur Cashin:

Rising yields continue to trouble equity types. The ten year U.S. Treasury yield is now above its 200 DMA. Yesterday, the Russell and Nasdaq Comp took out last week's intra-day lows. This morning the Dow and S&P tested their lows but held, which allowed for this rebound. Those lows are S&P 2077 and Dow 17,774.

I have lifted my exposure to closed-end municipal bond funds to close to 20%.

This move might confuse many because of my view that 2015 would end the three-decade bond bull market.

I have multiple reasons for this tactical move:

• With the recent share price declines, the average closed-end fund discount to net asset value is now over 6%, and the average non-taxable dividend yield is also over 6%.
• The 10-year U.S. note's yield is now 2.23%  -- a gain of nearly five basis points on the day and a rise of nearly 65 basis points since the recent low yield.  
•  We are probably close to a near-term peak in bond yields as the seeds of slower growth is being sowed: 

(1) Rising rates, as discussed in my housing post, will quickly choke of refinancings and reduce housing sales activity -- this will diminish personal consumption expenditures (relative to expectations) and limit the broad multiplier impact that home sales contains. 

(2) The recent general climb in commodities (especially of an oil-kind) will serve as a tax against the consumer and slow down already sluggish retail spending. 

(3) Monetary policy confusion and uncertainty will weigh on business capital spending.

(4) Should equities fall under the weight of higher yields (and other factors), the "wealth effect" will dissipate and reduce overall economic activity.

As I have previously mentioned, be prepared for random and volatile market moves. Welcome to the Wild West -- at the corner of Wall and Broad Streets. Err on the side of being conservative.  

I am a buyer of Citigroup (C) at $53, Bank of America (BAC) at $16 and JPMorgan (JPM) at $63.75. I am bidding slightly under the market for my regional bank package.

Real estate maven Mark Hanson modifies my forecast for impending housing weakness:

"Small" rise in rates had a big impact on "affordability" over the past month.

A typical end-user, owner-occupant buyer using a mortgage loan can "afford" to pay 5% less than a month ago, a big hit to builders already suffering margin compression.

The other day when I was on the Santelli show he made a comment about not understanding how rates dropping by 100bps in Q4 of last year, creating a savings of less than $100 a month, could mean so much to buyers that they all rush in at the same time and pay up. That's a great question I get a lot.

You have to look at volatility in mortgage rates another way. That is, most home buyers buy the maximum they can technically "afford" using contemporary mortgage DTI guidelines of ~43%. As such, as a rule of thumb, when rates drop 1% a home buyer can buy 10% more house and visa versa.

The post-crash housing and mortgage markets are so thin, volatile, and just-in-time that the 100bps plunge in rates in Q4 2014 created "some" incremental and "a lot" of pulled-forward demand into Q1 2015, which accounts for the better than expected resale and new home sale numbers in Q1.

The plunge in rates also kept house prices positive y/y. I maintain if not for the perfectly timed plunge late last year, house prices would have been negative right now. That is, if a 1% drop in rates adds 10% to purchasing power, yet prices were only up 4.2% in Q1, that is an "interest rate adjusted" drop in house prices y/y.

Bottom line: The hard data in Item 1) below say that the recent spike in 30-year fixed rate loans from 3.75% last month to 4.25% this morning decreased buyers purchasing power by 4.83%, or $16k, which is a big problem for the builders, most of whom during their Q1 earnings calls admitted to shrinking margins. As the lack of purchasing power works its way into the system over the next 2 to 5 months, house prices come up against the highest y/y price comp hurdles since 2007, which is when house prices will go negative y/y for the first time in years and against all forecasts and consensus estimates.

Item 1

Item 2

Apples to apples "affordability" 2004 and 2007 vs 2015 "affordability".

Builder house prices in 2015 are up 13% from 2006, yet the total payment is 35% higher and income needed to qualify is 72% greater using the popular loan programs of this era. Thus, the chronically weak demand for builder houses.

Bottom line: The loss of 5% purchasing power as shown in item 1) above will help to deflate bubble 2.0 some, but prices still have a long way to go lower in order to spur real end-user, owner-occupant demand.

Briefly, this is my current market posture:

• I am now market neutral, though I am maintaining a negative outlook for the full year as there is no margin of safety.
• The market has no memory from day to day, so I find my mission is to trade opportunistically (e.g., Monday's Trade of the Week shorting the QQQ). Basically, there is no trend (though, I believe a larger top is in the process of being formed) and trading is random, spastic and unpredictable -- and achieved on little volume.
• I am not totally dismissing long-term investments, long or short; there will be a time and place for those. But for the time being, I want to be quick-footed and not burdened by long-term investments. (For now, this approach is working well). In other words, I am more preoccupied by trading than investing.

• The Lindsey Group's Peter Boockvar parses the economic data:

ADP said there was 169k private sector jobs created in April, well below expectations of 200k and March was revised down by 14k to 175k. April was the slowest pace of job gains since January 2014 at the depths of the brutal winter last year. The job gains were driven by small and medium sized businesses, which is usually the case. Companies with 500+ employees added just 5k jobs. The services sector added 170k, little changed with 172k in March. The goods producing sector shed a net 1k jobs after adding 3k in March. Manufacturing was the particular drag as it cut a net 10k jobs while construction added 23k vs 21k last month. Mark Zandi said this, "fallout from the collapse of oil prices and the surging value of the dollar are weighing on job creation. Employment in the energy sector and manufacturing is declining."

Bottom line, the 6 month average in job growth of 220k is still pretty good but obviously the last two months is well below this pace. We've known for months now and especially after a likely contraction in Q1 that the economic data in the US has been punk and today's figure correlates with that. Mediocre growth remains.

Coincident with the no growth Q1 quarter, productivity fell at an annualized pace of 1.9% in Q1, in line with expectations. This follows a decline of 2.1% in Q4. On a y/o/y basis which I find more helpful in gauging trends, productivity was up .6% and is up on average just .7% over the past 4 quarters. This trend is well below the historical average of 2% and is the deciding factor on why US growth remains stuck in the 2-2.5% range instead of 3%+. Also of note, with weaker productivity comes higher unit labor costs. They are running up 1.4% y/o/y over the past 4 quarters vs just .8% in the 4 quarters prior. On an annualized basis in Q1, they were up 5%, the most since Q1 '14. Slow productivity actually can boost job growth as employers need more workers to do the same job but slower GDP growth and higher labor costs are the result.

Housekeeping item.

I have covered my German Bund futures short for a large gain.

The yield on the 10-year Bund has risen from 0.06% to 0.54% in a brief two-to-three-week period.

Though I expect German bond yields to rise, in the fullness of time, the easy money has been made.

Housing bulls contend that though mortgage rates are up recently, within the context of history rates are still low.

They are wrong.

There is far more sensitivity in the housing market to higher interest rates than many assume.

Let me explain my rationale.

There are already numerous challenges that the residential real estate industry faces, not the least of which is that home price increases have rapidly outpaced incomes. This helps to explain the plateau in housing turnover over the last 18 months. 

Yearly existing home sales represent the lion's share of total home sales. According to Peter Boockvar, in March, 2015 there were 5.19 million (annualized) homes sold and just 481,000 were new homes. Existing homes sales represent 91.5% of total sales, while new home sales represent only 9.5% (this includes both single and multifamily).  

Many existing home owners still have low teaser rates, low rate adjustable mortgage loans or have refinanced down to low fixed mortgage rates, all of which are no longer available or have limited availability.

Now, with fixed-rate 30-year mortgage rates rising above 4%, many existing homeowners who plan to sell because their home has grown inadequate relative to their needs and want to trade up to more expensive homes are likely to begin to be forced into not selling (and then buying a larger home) because they can no longer replace their low mortgage rates with anything close to their previous mortgage rates.

The rise in mortgage rates will also likely have a materially adverse impact on home refinancings. Refinancings have historically provided a significant impetus to home renovations and refurbishings, as it delivers cash directly available for home improvements.

In addition, home affordability also will be negatively impacted by the nascent rise in inflation (most notably the recent rise in crude oil prices and other commodities) that digs into real incomes and consequently affordability.

Look for softness in housing fundamentals (sales activity, home prices and in renovations) during the second half of the year and reconsider investment in home builders and home improvement companies.

I visited the Strawberry Fields memorial in Central Park last weekend.

It got me to imagining - with apologies to John Lennon:  

                  "Imagine"

Imagine there's no more Fed easing

It's easy if you try

Only sovereign debt rates below us

Above us only sky

Imagine all the investors

Trading only for today...

Imagine there's no more liquidity

It isn't hard to do

Nothing to buoy stocks and bonds for

And no Tesla (TSLA) too

Imagine all the investors

Trading only for today...

You may say I'm a Perma Bear

But I won't be the only one

I hope someday you'll short like me

And the world will be as one

Imagine no Netflix (NFLX)

I wonder if you can

 No need for greed or streaming

 A brotherhood of man

 Imagine all the investors

 Trading only for today...

 You may say I'm a skeptic

 But (trust me) I'm not the only one

 I hope someday you'll short like me

 And the world will live as one