How to Read a Tough Market

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

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Fox Business Channel Oct. 15th.

Did anyone of you notice that when the DOW was down 281 points on Friday, the
media had a party? Did any one of you notice that when the DOW rallied 286
points Monday, the media was silent?

In my last report, I stated that with all the bad news out, markets could
perversely start to rally…especially with such deep oversold conditions as
well as deep negative sentiment.

On Monday, the DOW followed through on day 4 turning the downtrend into a
confirmed rally. While other major indices did not follow through because they
undercut their lows on Friday, a confirmed rally needs only one major index. A
follow through day does not mean you go out and buy blindly. Every bull move has
been preceded by a follow through day but not every follow through day has led
to a bull move. One now waits for stocks to set up in proper consolidations for
high volume breakouts.

That takes me to Tuesday’s action. Simply put, the FED gave the markets every
excuse to sell off by their non-action as well as their non-participation in the
discussion of any problems. The market sold off over 100…ramped 100…sold off
100 and ramped up 140…and amazingly…sold off into the close…dropping 140
points in 10 minutes before rallying up 45 points in the last 3 minutes. I cant
make this up. BUT…the most important part of Tuesday was the action I saw in
leading stocks. Many ripped to the upside…and that is important to me. I
couldn’t care less what major indices do as long as leading growth stocks are
powering forward. Here are some of those names for your review: CMG, RIMM, BIDU,
WYNN, NILE, FSLR, TSL, GRMN and a bunch others.

To say the very least, the market action has been psychotic, ridiculous and
all over the map. The only people who win are the ones who sell Xanax. But by
following a strict set of rules and disciplines, you can see how we have stayed
out of trouble…and are now back looking for long positions. I am still
extremely negative on almost everything FINANCIAL…but they are now in bounce
mode. I am actually going to look to short some of those names as they rally up
into resistance. If I start to see distribution in the next few days, I will
have to adjust. At the very least, this will remain a very tough environment.

This market action does not change my overall feeling about the lending,
housing ,mortgage and buyout business. Maybe the market has already had a nasty
reaction to all of this…and that nasty reaction is over. Time will tell. Do
not shrug off all this news just because markets are in bounce mode.