Just what makes a bear market?
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. 888-484-8220 ext. 1.
I received an email with
a great question: I was asked how I can call what we have been seeing
a bear market when a bear market only occurs when something is down 20% or more.
It is simple. That 20% threshold is a made-up number by someone…and I couldn’t
care less about what number someone made up. I am different. For me…if I think
a market has topped, I call a top. If I think it is just a normal correction, I
call it a correction. If I think we are getting a bear market, I call it a bear
market. For me, the 20% doesn’t matter. What matters is the average stock.
Indices hold up much better than the average stock because of their weightings.
In bear markets, the DOW and S&P hold up better because money flows into the low
beta, megacap, liquid companies than have a tremendous impact on the indices.
While you may see the NASDAQ only down 10% from the high, the average stock is
down much more. But let’s not quibble. You may call the recent action whatever
you want. But here are some facts.
Since our call of a top on May 11, the market has done nothing but disappoint.
For sure, we have seen bounces…some violent…but that is a characteristic of
a bear market. In bear markets, rallies are sharp, they are noisy, they get
people talking, they suck people in…and bury soon after. I coined that phrase
during the last bear when on any up day, the bottom was called…and rallies
were nothing more than selling opportunities. Nothing has changed. On every up
day, I am hearing calls of a bottom…and every rally has been sharp and
noisy…only to get cracked in the head soon after. Until a real bottom is put
in place, get used to it.
I have no idea how long this lasts or how far it goes but will just say 20% down
from the recent highs would put the S&P at around 1050. No…I am not calling
for that. Just letting you know that the popular definition is 20%…so let’s
see what happens. Of course, the NASDAQ-types will always go down farther than
the S&P.
More forensic evidence:
We now welcome RETAIL to the ugly party. If my thesis was correct, RETAIL had to
come down. Our thesis involved the fact that we believe the market is yelling
that a major economic slowdown is in the cards. Thanks Ben. We say this because
DEFENSIVE areas like BEVERAGES, DRUGS and other CONSUMER STAPLES are
leading…and we believe the market knows all. These are recession resistant
companies that always lead in a slowdown or a recession. Why? When the economy
slows, we still drink our Pepsi…we still need to wash the clothes…and most
need to take more drugs. Of course, you do know we have turned into a medicated
society.
BBY crumbles AFTER good numbers.
LOW and HD…on the morphine drip.
The RESTAURANT group goes hand in hand with the RETAILERS. Look at the wonderful
action in APPB…and now even SBUX is breaking down.
Do you see where I am going with this? The market is yonking (love that word)
anything to do with the consumer. The market is screaming at the Fed at the top
of its lungs to ease up or we shall see recession city.
HOUSING stocks are breaking down to another new low after sitting around for
weeks…but don’t worry. There isn’t a housing bubble. Don’t worry about the
massive inventory build. It will just magically disappear.
Major indices could not get back above their moving averages. I pointed this out
in my last report. This is a classic sign of the bear.
The NASDAQ 100 has now broke to new lows. The NASDAQ is close. Please recall
that we have told you that the NASDAQ/NDX lead down in bear markets. It is less
than thrilling that they continue to implode.Â
The DOW, S&P and the RUSSELL now look like they have failed at moving averages.
And now…earnings season begins…cant wait!
Gary Kaltbaum
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