What The Reaction To News Is Saying…

 

So, what next? It’s simple. Regardless of any bounce…and yes, this market is
due for one, the game plan has not changed. You should be as far away from
this market as possible. Those of you that have to be invested, I would say to
stay as low beta as possible…but that’s not even working as many big-cap
CONSUMER stocks have joined the blow-up party.

 

While visiting FOX NEWS CHANNEL studios this weekend, I had the great honor of
meeting Dr. Michael Baden. Dr. Baden is one of the most sought-after
Forensic Pathologists in the world. He is able to uncover things most can’t by
delving deep into the evidence he finds. He is also host of HBO:AUTOPSY. You
probably don’t want to watch after eating though. I was thinking that what I
do is not much different than Dr. Baden. I just delve deep into the market. He
digs deep into bodies. Here is the latest evidence of a very problematic
market.

 

Throughout this whole year, I have been telling you about the deterioration in
how many stocks are in good shape vs. poor shape. The numbers are at their
worst level as about 3 out of 10 are now in good shape. This is a horrid
number. Keep in mind, this has been slowly leaking all year…and is much
worse on the OTC side. If there is only one thing to watch in the market…it
is this number. Of course, you have to scan 2500 stocks and 197 groups to keep
up.

 

All major indices are below their 50 day and now the all-important longer term
200 day average.

 

The NEW HIGH LIST is void of names and the NEW LOW LIST is
expanding…especially on the OTC.

 

Volume patterns continue to act like the METS. High volume drops and low
volume bounces are not a good thing.

 

Reaction to the latest crop of earnings have been the worst I have seen since
2000. Just a ton of blow-ups and no blow-outs. Even supposed good news has
been sold off. One of the most important things I watch is the reaction to
news.

 

Leading stocks have blown up. Even big-cap leaders like MMM and LXK have not
been immune.

 

Insider selling continues to swamp insider buying. I told you several months
back about the ridiculous amounts of insider selling in a host of TECHNOLOGY
names. Following INSIDERS have worked great for us throughout the years. It
certainly has not let us down this year.  We also isolated ORCL as a stock
that was going to single digits based on the CEO’s monstrous sales of stock.  ORCL
is currently trading at $10.10.

 

I can count on one hand how many groups are now in good technical shape…a
stark contrast from last year. It is not thrilling that most of those groups
are OIL-RELATED.

 

Lastly, sentiment remains ridiculously complacent and bullish. As you know, I
watch everyone, read everyone and listen to everyone in my business. Just
about everyone remains bullish. I have heard absolutely no one worried about
the recent bear market action. In fact, all I have heard is that this is a
blip and everything will be fine by year end. Advisors remain bullish.
Individuals remain bullish and all the articles I read remain bullish. Ladies
and gents, what has been happening is anything but bullish. If these bulls are
right, the market will have to muster up better than one day bounces. 

 

Now, let’s get to the near-term action. The good news has been the bad news.
The selling has been so brutal that one has to think a bounce is near. But,
the market bounced on Thursday only to dump on Friday. If that’s all the
market has, then it is in even worse shape than I thought. The NASDAQ has
already broke the important May lows. I suspect any bounce couldn’t even get
to 1900 level. I would now be watching and focusing on the May lows for the
DOW and S&P 500. A closing break of 9852 and 1076 respectively and those two
major indices would then join the NASDAQ in the OUCH party.

 

Please treat this market with the utmost respect. The average stock is in much
worse shape than the major indices. If I was to venture a guess,
notwithstanding OILS, I would suggest the average stock is now down 20%-plus
from the highs. No fun! Nothing I have seen so far in any of the action gets
me even remotely believing we are near any kind of good low. Any bounce is
sellable at this time. This action is not about Iraq, not about politics and
not about which team won the Super Bowl. It is about the most important
reaction…to earnings…and that needs to be taken seriously. It’s not the
news…it’s not the numbers…it’s how the market reacts to them.