This Is The Support I See For The Major Indices
I have to start this report by
using an excerpt from my March 21 report:
“I believe we are in a
broadening top for equities. Tops take time. They
tease the shorts as well as the longs as relief rallies suck investors in. If
the major indices break their 200 day averages, I believe, at the very least, we
will see something akin to last year…10% drop on the DOW and S&P and 20% for
NASDAQ-types. We will then reevaluate.
Let me be clear. OIL is at $57. I keep harping
on the fact that I am hearing too many say  that it will not affect markets. IT
WILL AFFECT MARKETS. OIL is a lagging commodity…meaning it gets into the
economy over a 9-12 month period. It is a tax on the consumer and business.
Earnings will come down because business expense goes up. Be careful of the
pollyanna-ish talk. Another factor is the FED. They have raised rates 6 times
and will raise again. The FED raising rates has almost always led to lower
equity prices.”
First off, do not forget the Fox News Channel
Business Block is back on this Saturday at 10 am est. Fortunately, there are no
weddings this week.
Needless to say, and unfortunately, the market is
following the script to a tee. Because of what we saw, we turned defensive on
Jan 3 of this year. Since, the market has flopped and chopped with a bias to
the downside. Fast forward to this week as a lot has happened in the past couple
of days…so listen up.
On numerous occasions, this report has outlined
for you the vital support in the market. As of this writing, all those support
levels have been breached…and on volume. Every sector we have talked about as
topping…is imploding.
TRANSPORTS, RETAILERS, SEMIS, CYCLICALS…the
list goes on and on. The market will now experience another leg down from here.
I would suggest the next support to be in the 9900-10,000 range for the Dow,
1140 S&P, 1900 NASDAQ and 1400 NDX. We will then reevaluate. Do not rule out the
10% Dow/S&P…20% NASDAQ drop…and just to put the bug in your head, don’t
ignore the potential for this action to turn into a full blown bear market.
I have a couple of important points I want to
make today:
First off, I believe I am going to turn out 100%
correct on what the market is telling us. For months, I have been yelping about
OIL prices slowly seeping into the economy. I have been astonished by some
quotes that even if OIL prices went to $100, it would not harm the economy.
Those quotes are folly and pollyanish. CYCLICALS are not just correcting…they
are not just topping…they are being ripped apart at the seems…AND THEY ARE
SENDING A LOUD MESSAGE. Since the market looks out several months, expect to
hear about a major slowdown by late summer. To really prove my point, the only
sectors that are turning up are those sectors that shine when the economy does
slow down. Ignore at your own risk. The market is without a doubt the greatest
forecaster of the economy–not someone’s opinion. I am also hearing that the
recent drop in OIL will help. I am sorry. OIL still sits at over $50.
Secondly, individual stock action is much, much
worse than the indices. I cant begin to start naming those stocks that are down
20% or more in recent weeks. You must remember that the major indices are
weighted and are not always indicative of what is really going on.
Other thoughts:
Out of the 200 sectors I follow, I can count on
one hand the ones that are turning up. The sectors that are turning up are
DRUGS, FOODS, BEVERAGES and the like. In other words, all the defensive areas
that spell out a slowdown. The reason they do better in a slowdown is because
they are economically resistant. Not many will stop drinking their Pepsi if the
economy slows.
GOLD has now totally broke down with other
COMMODITIES.
HOUSING now not only looks sellable…but
shortable here.
HMOs have topped. they have been leading but the
party looks to be over.
You are going to hear the words “oversold,”
“value,” “overreaction” and all kinds of gibberish to explain what is going on.
You are going to hear analysts defending everything in sight. Please remember
that there are certain people of the investing community that would stay bullish
if the DOW went to 1,000. They will be of no use in a bad market and will
actually be your worst enemy. We will continue to let the market’s price and
volume action be our guide. It has done a good job for us so far.Â
Gary Kaltbaum