Add This Sector To The List That Has Topped Out

I told you OILS were extended and due for a pullback. Even though OIL prices
were up over $2, OIL stocks reversed down. How can that be? Just as I said.
OIL stocks got ahead of themselves…simply, too far, too fast. OILS are
buyable on a further pullback as are most COMMODITY-based stocks. Be patient
as there is more to go.

I told you FINANCIALS were topping out…which could be an ominous sign for
the market. FINANCIALS went from bad to worse on Tuesday. The only good news
is that they have become oversold very quickly. The bad news is most have
broken important support…and on massive volume. This includes all
INTEREST-rate sensitive areas. You can also add UTILITIES to the areas that
have topped as they played catch-up on Tuesday…dropping 3%.

I told you the NASDAQ and NASDAQ 100 were the weakest areas–except for the 
SEMIS–that were outperforming. The SOX was actually up 2% midday until the
market was trashed.

The outcome from Tuesday’s action, to say the least, was horrid. All major
indices had a high volume distribution day. The DOW and S&P 500 sliced through
the all important 50-day average.  Small  caps, mid caps, large
caps…the market played no favorites. Advance/decline figures were the worst
I have seen in quite a while.

The market will not be able to take too much more of this type of action. Not
only did I get more defensive several weeks back but I am now net short the
major indices with a stop above their recent highs…a very low-risk bet. As
always with a top in place, I will tell you the same thing. I have no idea
whether this is a short-term correction, an intermediate-term correction like
last year or the start of something very serious. I just know when it is time
to get out the umbrellas…and that’s before the big storm hits. No matter
what, this tape is going to continue be tough. I urge you to keep January’s
lows in your sight. A break below would turn what has already been a pretty
good rough patch into something much more severe. That would be NASDAQ 2008,
NASDAQ 100 1489, DOW 10,368 and the S&P 1163.

Gary Kaltbaum