Ignore The Past Two Days’ Action At Your Own Risk
On my radio show today,
I mentioned to all my listeners to bet USC in the Orange Bowl. I told them to
do this not because I thought USC was better than Oklahoma. I told them to bet
USC because the betting line moved from USC -3 points to Oklahoma -1 point.
This simply meant that most were betting on Oklahoma. I have a simple theory
about the gambling business…MOST GAMBLERS LOSE. How do you think the casinos
pay for all those lights? I came off the bench and bet USC. The winnings will
go to the Red Cross.
I mentioned to all my listeners to bet USC in the Orange Bowl. I told them to
do this not because I thought USC was better than Oklahoma. I told them to bet
USC because the betting line moved from USC -3 points to Oklahoma -1 point.
This simply meant that most were betting on Oklahoma. I have a simple theory
about the gambling business…MOST GAMBLERS LOSE. How do you think the casinos
pay for all those lights? I came off the bench and bet USC. The winnings will
go to the Red Cross.
Â
I bring this up because what I have told you
recently about the sentiment in the market. Throughout most of December, I
told you that the market continued to act fine but that I was starting to see
some cracks in a few areas. I also told you on several occasions that too many
were too bullish. Here is what I wrote on December 20:
recently about the sentiment in the market. Throughout most of December, I
told you that the market continued to act fine but that I was starting to see
some cracks in a few areas. I also told you on several occasions that too many
were too bullish. Here is what I wrote on December 20:
Â
“Near-term, the market
is starting to get a wee bit on the sloppy side. Near-term, I am
seeing some of the bigger cap names put in tops. Near-term, sentiment is off
the charts bullish. For example, the % of bullish advisors is at 62.1%, the
highest figure since 1987…gulp. Put/call figures are waaaaay too bullish.
Lastly, NASDAQ volume is now ahead of NYSE volume…indicating speculation.
None of these numbers occur at a bottom.”
is starting to get a wee bit on the sloppy side. Near-term, I am
seeing some of the bigger cap names put in tops. Near-term, sentiment is off
the charts bullish. For example, the % of bullish advisors is at 62.1%, the
highest figure since 1987…gulp. Put/call figures are waaaaay too bullish.
Lastly, NASDAQ volume is now ahead of NYSE volume…indicating speculation.
None of these numbers occur at a bottom.”
Â
I believe my thoughts on gambling work the same
for the market. When bullishness goes to extremes, it is time to be more
careful. To expand on this:
for the market. When bullishness goes to extremes, it is time to be more
careful. To expand on this:
Â
I have literally seen no puts being bought,
indicating no one thought the market could go down.
indicating no one thought the market could go down.
Â
The % of bullish advisors (aka the wrong-way
crowd)Â became more bullish than when the NASDAQ was at 5200.
crowd)Â became more bullish than when the NASDAQ was at 5200.
Â
$1Â stocks were going to $5 in days. Recently, a
ton of speculative plays on the earthquake skyrocketed.
ton of speculative plays on the earthquake skyrocketed.
Â
Lastly, have you listened to strategists on Wall
Street?…I found one bear for 2005…and that is Jimmy Rogers. In case you
don’t know him, he is one smart dude.
Street?…I found one bear for 2005…and that is Jimmy Rogers. In case you
don’t know him, he is one smart dude.
Â
When the world’s bullishness is at extremes, who
is left to buy? That’s a good question. And if there is no one left to buy
and the selling starts, then what happens? Well, I think in the first two
days of the year we are getting the answer.
is left to buy? That’s a good question. And if there is no one left to buy
and the selling starts, then what happens? Well, I think in the first two
days of the year we are getting the answer.
Â
I am already hearing not to worry. I am hearing
that the past two days is only normal…that people waited to sell after the
New Year. Sorry…it is my contention that if the market was so strong, it
would not be selling off so easy. Here are my technical thoughts:
that the past two days is only normal…that people waited to sell after the
New Year. Sorry…it is my contention that if the market was so strong, it
would not be selling off so easy. Here are my technical thoughts:
Â
We have had two major distribution days in a
row. Volume has been heavy. That is not Aunt Mary and Uncle Bob selling. The
drop has been broad-based, hitting most sectors hard. Many names have
already broke their 50-day moving averages and many leaders are now starting
to gag. If there is one thing you don’t want to see, it is the leading names
of the past few months rolling over. A few like AAPL and GOOG are hanging in
there but names like DRIV, MACR, RIMMÂ Â and many others are being taken
apart.Â
row. Volume has been heavy. That is not Aunt Mary and Uncle Bob selling. The
drop has been broad-based, hitting most sectors hard. Many names have
already broke their 50-day moving averages and many leaders are now starting
to gag. If there is one thing you don’t want to see, it is the leading names
of the past few months rolling over. A few like AAPL and GOOG are hanging in
there but names like DRIV, MACR, RIMMÂ Â and many others are being taken
apart.Â
Â
I do not think it wise to listen to anyone right
now…bear or bull. I think it wise to listen to the market. All I know is
that I have already gone to a more defensive posture. More days like the
past two will sing the death knell for the rally of the past few months if
it has not already been killed. I am going to sit back and see which stocks
hold up the best. I will sit back and wait to see if the market finds
support. I will start to probe the short side on any bounces as I am seeing
a ton of names breaking support…especially in TECHNOLOGY areas like the
SEMIS. The major indices are already closing in on their 50-day
averages…where they can potentially bounce. At the very least, damage will
have to be repaired before any important move back up…and new bases will
need to be formed. Ignore the past two day’s action at your own risk.
now…bear or bull. I think it wise to listen to the market. All I know is
that I have already gone to a more defensive posture. More days like the
past two will sing the death knell for the rally of the past few months if
it has not already been killed. I am going to sit back and see which stocks
hold up the best. I will sit back and wait to see if the market finds
support. I will start to probe the short side on any bounces as I am seeing
a ton of names breaking support…especially in TECHNOLOGY areas like the
SEMIS. The major indices are already closing in on their 50-day
averages…where they can potentially bounce. At the very least, damage will
have to be repaired before any important move back up…and new bases will
need to be formed. Ignore the past two day’s action at your own risk.
Â
Lastly, I am also hearing all the talk about
what the first week of the year means to the rest of the year. Supposedly,
as the first week goes…the year goes. I know there is precedent for this
belief. I am letting you know I pay no attention. IT IS A LONG YEAR!
what the first week of the year means to the rest of the year. Supposedly,
as the first week goes…the year goes. I know there is precedent for this
belief. I am letting you know I pay no attention. IT IS A LONG YEAR!
Gary Kaltbaum