Follow Throughs Don’t Always Create Bull Markets
Gary Kaltbaum is an investment advisor with over 18 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show “Investors Edge” on over 50 radio stations. Gary is also editor and publisher of “Gary Kaltbaum’s Trendwatch”… a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary’s Daily Market Alerts click here or call 888.484.8220 ext. 1.
I am going to hold off on my weekly rants against the miscreants that are running our financial system into the ground because a lot is happening in the market. I will be back to my normal rants soon as I am sure we will continue to see imbecilic answers to the problems those same people created. This is what I wrote in my last report that I went out on July 30:
“Tuesday was a potentially very important day. The stock market followed through on a new rally as OIL PRICES again dropped precipitously. This bullish signal occurs after a major index hits a low and then experiences a big gain with volume higher than the day before. There is a direct correlation between OIL PRICES and the market since the market’s lows. Keep in mind… here is the line I say every time a follow through day occurs: Every bull move the market has ever had started with this characteristic but not every follow-through led to a new bull market. It is now time to build a watch list of leading stocks that have shown great relative strength during the bear phase and hopefully find them breaking out of bases on heavy volume. If none show up, this will tell you everything you need to know about the market. In past weeks, I have told you about the BIOTECH/MEDICAL/TRUCKERS but that has been about it for leadership. I will need to see more. The biggest moves on Tuesday were reserved for the areas that were hit the hardest and just trying to make up lost ground. Be patient… take your time because if this is for real, leadership will show up. You cannot hide bull markets just as you cannot hide the bear markets. The one thing I do at this point is to get off the short side… meaning any inverse ETF… whether market based or sector based. If this remains a bear market, I can always revisit. Keep in mind, the last follow through day in March lasted about 8 weeks and was very narrow with only a few COMMODITY-based areas leading. I suspect we will need to see the important OIL commodity continue to come in for the market to really get going. Lastly, please do realize that in the past 2 days, the DOW is up 20 points… S&P 4 points and NASDAQ 9 points. That is how spastic things have been. Do not believe for a second this is going to be easy.”
I start with that last paragraph because WE STILL REMAIN IN A CONFIRMED RALLY OFF THAT FOLLOW THROUGH DAY! This continues to give the market a chance to move higher as we have never seen a bull move of consequence without one. Since, I have actually started getting invested… the first time since late May. On top of the BIOTECH/MEDICAL and TRUCKERS, I am now seeing better action in RAILS and then a few names in the following groups… REITS – yes, REITS – as a few have moved out of bases and others setting up in bases, RESTAURANTS and RETAIL. I define leadership by stocks and sectors that had the best relative strength in the bear and their ability to move out when the action gets better. The rest of the market’s move has been all the bear market areas coming off their lows because of the continued drop in OIL. Usual suspects are AIRLINES, CRUISE LINES, HOUSING, RETAIL, TRANSPORTS and really anything CONSUMER as the market has completely flip-flopped. One of my best calls this year was the MAJOR SELL SIGNAL call I put out on the COMMODITIES on July 2. This is the reason for the better action in the consumer areas. Most COMMODITIES topped that day but not until OIL joined in on July 15th, did the market get going. OIL topped on July 15th… EVERYTHING ELSE BOTTOMED ON JULY 16TH. Oil topped… retail bottomed, direct correlation. Oil topped… restaurants bottomed, direct correlation. Oil topped… airlines bottomed, direct correlation… and so on and so forth. Near term moves aside… and there will be plenty of near-term moves, all COMMODITIES look sellable on bounces…and if they don’t put in real bottoms, MOST CONSUMER areas should be looked at on any anticipated pullbacks… thus the flip-flop. Now onto a few other points that need to be made.
Several weeks ago on TV, I stated that I thought the DOLLAR was trying to bottom. After a few days, I thought I was wrong. The move is now coming to fruition as the DOLLAR broke out nicely on Friday. I will let the pundits decide why. I have my own ideas. If this continues, expect COMMODITIES to continue to stay in trouble… and my previous bullish calls on GOLD to not work out… as GOLD has now broke below longer-term moving averages. GOLD had been basing nicely for the past 4 months.
I could not do a report without talking about the recent volatility. Very simply, there really isn’t precedent for me to study the ridiculous action of the past couple of weeks. The market has experienced 7 200-point up or down days with two 300-point up days… but in that time, the DOW is up a whopping 36 points. One cannot go home bullish or bearish and be comfortable for the next day.
I next needed to give you some stats that may or may not throw cold water on this nascent rally off the lows:
The 300-point rallies we have seen in the past week are actually normal for bear markets. Since the broad market topped in July, this was #7 and #8 for 300-point up days. During the last bear market, there were 16 300-point up days. But in the bull market that followed, there was ZERO… a big fat ZERO days where the market was up 300 points. HMMM!
It is quite normal to have intermediate term rallies in bear markets that last 2-3 months. The last one we saw lasted 2 months before the market was again trashed. Only this time, instead of narrow leadership in the COMMODITIES, this time the leadership is in most everything else while the COMMODITIES croak.
Every major market bottom has included several days of panicky action that tend to wash out the latest of late sellers. I am not so sure that has occurred yet.
So… before you get all lathered up, remember these facts as bull and bear markets do tend to rhyme as fear and greed play themselves out the same way. All that said, the market is in a confirmed rally now based on the continued plunge in OIL and other COMMODITIES. I believe that will absolutely need to continue for continued gains in the CONSUMER areas that are leading. I simply will continue to add to my positions if distribution does not rear its ugly head and leadership continues to show up. Be on the lookout for any massive distribution that could snuff out this rally. I am hopeful but I am also realistic. There is a lot of resistance ahead that this market has to deal with… and of course, a lot more news that could affect things.
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