Energy and Semis Look Good

Gary Kaltbaum is an investment advisor with over 18 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show "Investors Edge" on over 50 radio stations. Gary is also editor and publisher of "Gary Kaltbaum's Trendwatch"...a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary's Daily Market Alerts click here or call 888.484.8220 ext. 1.

Some thoughts...and then the market. Lots to say!

Did you know that last year, Best Buy collected $790 million in commissions from the sale of extended warranties? Best Buy's earnings for last year was $1.38 billion. Best Buy just disclosed that as a percentage of revenues, extended warranty sales as a percentage of revenue fell 12%. Look out below!

Ben Bernanke now admits subprime losses will MUCH MUCH worse than previous thought. This from the man who said it was good for the economy...was not going to be a problem...was maybe a little problem...was maybe bigger than he thought...and now. He said the same thing about housing. In fact, was out again last week saying housing will stabalize soon...for the 50th time. How any one can say he is doing a good job is beyond me. Too many tie his job to how well the stock market is doing. Have you seen the dollar? Did you see how well he oversaw the lenders and their maniacal lending practices? Greenspan was no better. Nothing but enablers.

Why hasn't the NFL already suspended Michael Vick? They had no problem suspending Pacman Jones in an instance. I do have an idea. I think Michael Vick should get in a cage with a couple of pitbulls and see exactly and feel exactly what they have been feeling in those fights. That will stop him in his tracks.

Speaking of housing, have you seen the charges the homebuilders are taking for writing off land values? You aint seen nothing yet.

Congress' poll numbers are just a little better than O.J.'s poll numbers. I am of the opinion that this is the lamest group of politicians we have seen in a very long time...and that is a non-partisan statement. Both sides of the aisle are horror shows. Just what the heck are they doing in Washington these days.

Not much has changed in the market...but if I were you, I would be paying a heck of a lot of attention to what I have been and what I am saying. ..and it is simple. While everyone has been thrilled with the 14,000 milestone for the DOW, when you look at what is underneath the hood, it is becoming more and more of "less than meets the eye." Far be it for me to throw cold water on 14,000 but the fact is the market rally has been getting narrow...and more narrow...and more narrow by the day. You don't need my opinion, just start with the NEW HIGHS vs NEW LOWS. One day removed from 14,000 and we are seeing 216 NEW HIGHS...and an amazing 326 NEW LOWS in the entire market. Granted, about 50 of the NEW LOWS are bond funds...as they have imploded...but that's it. Looking deeper, there are 126 BANKS at NEW LOWS. There are 37 S&Ls at NEW LOWS. These are the areas I have been telling you to avoid as they are just going deeper into their own private bear market. To go further, when the DOW hit 13,000,over 70% of stocks were in good technical shape. With the DOW at 14,000, less than 60% of stocks are now doing the job. These stats must be watched as it is these types of divergences that lead to tops...real tops...not the ones that last 3 days or 3 weeks. It does not mean it has to occur. That's why we use support levels to tell us if the market is going to get in trouble.

Moving on to those levels, I have to make note...if nothing changes, I am sure the RUSSELL 2000 will be the first index to get into trouble. It has lagged for months...and continues to lag. On any bad days, it gets hit hard...and how about this as an important statistic...SINCE 4/16, the DOW is up 1130 points...the RUSSELL 2000 is up 5 points. That rates a big wow...and tells you why we are watching this closely. The RUSSELL 2000 is already below the 50 day moving average. If I feel the market is going to get into trouble, I will be all over the TWM...which is the double inverse RUSSELL 2000.

As far as sectors, we remain about as bearish as can be on anything FINANCIAL/INTEREST-RATE SENSITIVE. As I scanned those areas, I was amazed to see the implosion of many names in spite of the DOW just hitting 14,000. They are oversold...but you could have said that about them last week.This includes BROKERS like MER,LEH and of course BEAR STEARNS. I also want to make note that Goldman...which has held up the best...has now broke below the longer-term 200 day average...and on volume. I have always used the 200 day to define bull and bear markets. In bear markets, if you just sold everything breaking the 200 day, you save a ton of money. There are many stocks that already fit that description.

Other groups I remain negative on are the REITS...which continues its bear market in spite of upgrades and in spite of the crooks touting new buyouts every day. I remain negative on INSURANCE...which is now rolling over badly. Just look at ALLSTATE....serves them right as they just dropped my home insurance. I am negative on most RETAIL,COAL,GAMING,AIRLINES...except for UNITED, HOUSING...which is now in the "give-up" phase...which means people sell at any price. Another crook went so far as to float a rumor that Warren Buffett was buying into Hovnanian. I have news for you. Hovnanian's market cap is $1 billion. When Buffett spends, he spends billions. He could use his Christmas expense account to buy them. Lastly, I remain bearish on LENDERS of all kinds...for obvious reasons.

With the DOW and S&P just off their highs, there is still plenty working. I am bullish on anything ENERGY-related...though a decent amount of names are breaking first line of support. I am bullish on most, but not all SEMICONDUCTORS...though they are due to pull in. I am bullish on many COMMODITY names...but I am no longer bullish on STEEL as even X has broke near-term support. I am bullish on CHEMICALS, CONSTRUCTION, METALS and all areas having to do with them. Lastly, I continue to be bullish on the long list of growth stocks that are still working. Names like AAPL, RIMM, FWLT, BIDU and the like continue to power away...but keep in mind, many have had big moves already...and are in dire need of pullbacks.

I am now starting to get very bullish on GOLD/SILVER stocks. As I have recently said, for the first time in months, the stocks are outperforming the metal...which is normally a bullish occurrence. I saw strong money flows all week in this group.

Here are the support levels I am watching closely. With underlying action less-then-thrilling, it is imperative support holds. The DOW would first have to fail the breakout at 13,692 and then break 13,474. The S&P is already below recent breakout (the S&P remains weaker than the DOW because of its heavy FINANCIAL component) so first support is 1506 and then double bottom support at 1484. First line of support on the NASDAQ is 2631. If these levels are not taking out, it would simply means we will remain in split-tape city.

Gary Kaltbaum