I See These Five Important Changes Beginning

  • January 5, 2004
  • Gary Kaltbaum

More
changes to talk about, but first
the things that have not changed. In the past few weeks, I have mentioned that
RETAILERS had topped, Semis were acting toppy along
with other miscellaneous TECH. I am now convinced
that with the RETAILERS, in particular, the top will not be of a short-term
nature…possibly longer-term. The breakdowns are coming on a daily basis and
no one is talking about it. Look at what happened to the RTH on Friday. That
is ugly.

image src=”https://tradingmarkets.com/media/2004/Kaltbaum/gk010504-01.gif” />

Now…let’s look at some
individual names in RETAILING. You will easily
see what I am seeing. I could show you many more.

image src=”https://tradingmarkets.com/media/2004/Kaltbaum/gk010504-03.gif” />

image src=”https://tradingmarkets.com/media/2004/Kaltbaum/gk010504-04.gif” />

image src=”https://tradingmarkets.com/media/2004/Kaltbaum/gk010504-05.gif” />

The SEMIS
are still acting toppy but have not done the big cave-in yet. Taking a look
at the
(
$SOX.X |
Quote |
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PowerRating), a break back below the 50 day would be the first negative
and will potentially send this important index down to recent support down at
468.

image src=”https://tradingmarkets.com/media/2004/Kaltbaum/gk010504-06.gif” />

On the positive side, nothing
has changed. Seven to eight stocks out of 10 remain in good technical shape.
With that number, it will be hard for the market to break down in the near-term.
I am also still finding a number of decent breakouts on a daily basis…another
positive sign.

Now…let’s get to some
important changes I believe are starting to occur:

1.
I believe the bond market is heading for trouble. It looks headed
for the lows set in August/September. I believe there is a good chance of that
support breaking as I expect rates to kick higher here.

image src=”https://tradingmarkets.com/media/2004/Kaltbaum/gk010504-10.gif” />

That dovetails perfectly
with the fact that:

2.
I am starting to see many S&Ls, REGIONALS and other FINANCIALS that feel
like they could be topping out here. This needs to be watched
very closely as the FINANCIALS have always been
a strong indicator for me — and don’t think the dollar is not an issue in this
equation.

3.
I believe the Dow can now start to pull back here. I say this
because the Dow-types are very extended from their recent breakout and are due.
I am also seeing some tired action in the many CYCLICAL
names that have led the Dow-types up. This would not be a bad occurence as pullbacks
are normal. With Friday’s reversal as well as many CYCLICALS
looking like they are ready to pull back, I would not bet against it.

4.
HOMEBUILDERS
have topped.
I made the call to my
service on Tuesday. This action is simply forecasting higher rates.

Lastly, I was asked how
much longer this market will rally. My best guess — and it’s only a guess –is
that:

5.
We are in the 7th inning of this bull move. It will get tougher
and tougher from here on in, as the tape starts to split more and more. When
I start to see more sectors top, I will know the party is over. So far, that
has not happened. On the sentiment front, it will not take much to scare investors
and cause a real drop, as everyone is bullish and leaning long.

Gary Kaltbaum