I Have Two Main Worries. Here They Are…
The third quarter has come and gone.
The year is now in the homestretch. To say the least, this year is nothing
more than a tease. It has teased the start of a new bear market and it has
teased a breakout to the upside. Just this past week, the market attempted to
go topside until it failed later in the week.
The year is now in the homestretch. To say the least, this year is nothing
more than a tease. It has teased the start of a new bear market and it has
teased a breakout to the upside. Just this past week, the market attempted to
go topside until it failed later in the week.
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The DOW continues to lag badly. I expect more of the same. All one has to do
is take a gander of the charts of MRK, PFE, KO and a few other lovelies.Â
There is also a chance that the SEMIS are now toast again. They have been
flopping and chopping around the past couple of weeks but Friday’s action
gives me pause. For example, AMAT looks to have failed its move. Volume was
huge on Friday. That is not Aunt Mary and Uncle Bob doing the selling. If AMAT
breaks its lows, I expect others to follow suit…and that’s the party.
is take a gander of the charts of MRK, PFE, KO and a few other lovelies.Â
There is also a chance that the SEMIS are now toast again. They have been
flopping and chopping around the past couple of weeks but Friday’s action
gives me pause. For example, AMAT looks to have failed its move. Volume was
huge on Friday. That is not Aunt Mary and Uncle Bob doing the selling. If AMAT
breaks its lows, I expect others to follow suit…and that’s the party.
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Major indices are flat to down a wee bit this year after putting in an
intermediate-term low in August.  Two things I will be watching for in the
coming weeks…and both have to do with the reaction and not just the
news. EARNINGS come out in droves starting this week…and come early
November, something called a presidential election.Â
intermediate-term low in August.  Two things I will be watching for in the
coming weeks…and both have to do with the reaction and not just the
news. EARNINGS come out in droves starting this week…and come early
November, something called a presidential election.Â
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Whichever way the market breaks, we will play it. If the markets break out to
the upside out of this range, we will be long. If they break down, we willÂ
short the market as well as individual names. I did want to say that even if
the market indices did break out to the upside, I still believe the momentum
high for this cycle was put in in January. This simply means that less and
less stocks are participating in any move up…which means less and less names
are doing the heavy lifting. Once they tire out, it usually is the start of
the bear.
the upside out of this range, we will be long. If they break down, we willÂ
short the market as well as individual names. I did want to say that even if
the market indices did break out to the upside, I still believe the momentum
high for this cycle was put in in January. This simply means that less and
less stocks are participating in any move up…which means less and less names
are doing the heavy lifting. Once they tire out, it usually is the start of
the bear.
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I have two main worries: valuation and oil prices. I do not believe excessive
valuations have been worked off enough to start a new “grand bull market” so
many have predicted. Currently, the S&P 500 trades at 18-20x earnings
depending on who you talk to. New “grand bull markets” usually start at 10-12x
earnings. I am not saying the market has to drop to get there. Earnings could
catch up. The NASDAQ is another story as there are still too many stocks that
are being being bid up to nosebleed valuations based solely on a theme.
Remember what happened in 1999-2000. Oil is my other problem. High oil prices
is a huge tax increase on the consumer as well as business…which has a
direct effect on the economy. In the past, every time there has been an oil
price shock, it has led to a recession. I do not believe the market will
handle the next recession with a smile. I am also worried that no one on Wall
Street seems to be worried about the high oil prices. In fact, I just saw a
front cover of a magazine stating it is good to have oil prices at these
levels. No comment on that opinion.
valuations have been worked off enough to start a new “grand bull market” so
many have predicted. Currently, the S&P 500 trades at 18-20x earnings
depending on who you talk to. New “grand bull markets” usually start at 10-12x
earnings. I am not saying the market has to drop to get there. Earnings could
catch up. The NASDAQ is another story as there are still too many stocks that
are being being bid up to nosebleed valuations based solely on a theme.
Remember what happened in 1999-2000. Oil is my other problem. High oil prices
is a huge tax increase on the consumer as well as business…which has a
direct effect on the economy. In the past, every time there has been an oil
price shock, it has led to a recession. I do not believe the market will
handle the next recession with a smile. I am also worried that no one on Wall
Street seems to be worried about the high oil prices. In fact, I just saw a
front cover of a magazine stating it is good to have oil prices at these
levels. No comment on that opinion.
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Nevertheless, as we always do, we will let the market do the talking and leave
the opinions to the opinionators.
the opinions to the opinionators.
Gary Kaltbaum