I doubt we’ve seen the market bottom, here’s why

Speaking of short-sellers…securities regulators are investigating
whether Vonage’s stock
(
VG |
Quote |
Chart |
News |
PowerRating) dropped because of short seller’s chicanery.
Sure, it had nothing to do with the fact investment bankers brought Vonage
public even though the company lost hundreds of millions on approximately
$350 million in sales. Sure, it had nothing to do with all the competition
from major companies directed at the heart of their business. Sure, it had
nothing to do with the fact it was brought out at the top of the market.
Yes…blame the short-seller.

The Mets continue to play well. Had to throw that one in.

The first tropical depression is headed for Florida. In fact, close to
Central Florida where we reside. Can’t come up with any sarcasm for that
one. Let’s just hope for a quiet season…and please stay away from New
Orleans.

Some emails answered:

Don’t know but doubt it.

Don’t know but doubt it.

Don’t know but doubt it.

Don’t know but doubt it.

What is a CNBC and what is a “v” bottom?

Don’t know but doubt it.

Don’t know but doubt it.

Don’t know but doubt it.

Don’t know but doubt it.

OK…enough, that was the bottom and the DOW is going to 40,000!

We have seen absolutely nothing that changes our stance that a bear market
started on May 11. We have no clue as to price and duration and find it
folly to try to predict. Unfortunately, just like the last bear market, we
suspect we are going to have to make this statement over and over again.
We understand Wall Street’s always-bullish bias so it is extremely
important to ignore the noise and pay strict attention to reality. Too
many continue topay attention to the trees (the near-term oversold
condition) and not the forest (the overall market condition). If we had a
dollar for every email we received in the past couple of days asking if
the market had put in a bottom on Thursday…well…let’s just say we
would not be writing this. It is so amazing how investors try to grab for
any lifeboat when the market is in a bearish phase.

After three and half days of brutal selling, the market found a place
where it said enough was enough. Please don’t think past that. A chart of
every major index and every major market around the world evidence this.
Keep in mind that bounces are the trees. The forest is that the market as
well as markets around the world have made strong tops. Into Thursday,
every one of our short-term sentiment gauges were off the charts…in
fact, they were off the charts all week…but Thursday’s action finally
found panic selling. On Thursday, the market reversed to the upside off of
a nauseating drop. Volume was monstrous. That was the first day since the
drop that we felt panic in the selling. We have taught you for years that
upside reversals serve two purposes. First off, they serve to suck out
all the panicky sellers at the most inopportune time. We call this a
washout or a shakeout on Wall Street. Secondly, it serves to give the
market some impetus for upside testing. Only one problem ladies and
gents. Until the market confirms that the downtrend is over, we are in a
downtrend. Downtrends are different than uptrends. In other words, bear
markets are different than bull markets. In bull markets, days like
Thursday wipe out all the sellers…embolden the buyers…and the market
is off to the races. In bear markets, days like Thursday occur only
because the market had dropped too far…too fast. Relief comes in the
fact that sellers are tired and shorts start to cover. But in bear
markets, these reversals are fleeting. They make you feel good…make you
feel emboldened, suck you in…and then bury you soon after. Learn this
lesson. Because if this is indeed a bear market of consequence, you are
going to see violent rallies…which will all fail miserably. At this
juncture, we are going to look for a follow-through day starting on
Tuesday. Even if one occurs, keep in mind, the major indices as well as
all World Markets are a mess right now. The market will still need time
to repair all the damage.

Normally, we would post some charts on this report…but after the past
week’s action, most look like a 3-year old scribbling with crayon on a pad.
We do have some thoughts.

The BOND MARKET continues to bounce. We continue to believe BONDS are
in a longer-term bear market…but shorter-term, we continue believe we are
going to get upside testing. Just keep in mind that there is a good chance
that the first second Big Ben states he is going to pause, the Bond Market
will crack once.

GOLD finally broke short-term moving averages. It could not make a
stand. GOLD STOCKS continue to under perform the GOLD by a wide
margin…which is a negative.

COMMODITY STOCKS have also been cheesed. On Thursday, most reversed
higher with the market. But…we believe, at best, this area has weeks of
flopping and chopping before it can even begin to start moving up again. At
worst, they have started their own bear market and are headed much lower.
This includes OIL STOCKS which remain under serious distribution even though
OIL PRICES remain above $70.

WORLD MARKETS are imploding. EMERGING MARKETS are on the morphine drip.
As we have told you, our best call was when we told you that the most risk
is in the EMERGING MARKETS because of their illiquid nature.

You may also putdown Europe and Asia on this list.

ADVANCE/DECLINE as well as UP/DOWN VOLUME figures remain horrid.

There is a clear lack of leadership. We do not believe our favorite
sectors, the BIG BANKS, MEDIA, misc. HEALTHCARE, CONSUMER STAPLES and now
UTILITIES, will be able to lead the market back into the promise land. Leadership
will need to show up.

NEW HIGHS…what NEW HIGHS?

MUTUAL FUND CASH remains near the very low 4%…which was the low at
the start of the bear in 2000.