Gary Kaltbaum is an investment adviser with over 25 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.
Up front, let me just say that my thoughts on QE2 ultimately having repercussions are now coming to fruition. Part of what is happening in the Middle East has to do with higher commodity prices. QE2 has crushed the dollar…leading to higher commodity prices. Mr. Bernanke, again, your interference with markets has caused dislocations that are tough to recover from. First the housing bubble…and now this. Of course, we shouldn’t worry about soaring commodity prices…right?
Pundits were out in force and will continue to be out in force blaming the news out of Egypt for Friday’s plunge. In the next couple of days, you will be hearing the word “overreaction” several thousand times. But those that follow me know that I go by one motto: it’s not the news, it’s how the market reacts to the news. Over the past several months, we have seen and heard plenty of bad news…but the market kept going higher. We have seen an implosion in the muni market. We have seen an explosion in deficits. We have seen 9.6% unemployment. We have seen oil and commodity prices skyrocket. But the markets kept going higher. So be careful about the blaming of Egypt. For sure, serious uncertainty like this roils markets…but how many times have we seen bad news and the market continued up? The bottom line is that the internals have been deteriorating while bullishness has gone to extremes. With everyone in…with everyone excited, with markets extended, with one pundit calling for a 120% S&P gain by 2013, the market was already primed. So just to get a few facts out of the way:
While the DOW has moved to new highs, new highs in the market are much much lower than when the DOW was 500 points lower, indicating large cap stocks, which have a major influence on the indices, were taking over. This is a negative divergence.
Several countries like India, China and Brazil have been lagging. India has had a mini-crash. And now, I am seeing many other countries break the 50 day moving average possibly completing important tops. This also includes the emerging markets’ indices.
We have been seeing a lot of RETAIL get in trouble. You can now add other consumer discretionary areas like HOTELS,CRUISE LINES and others in the potentially topping out category.
The TRANSPORTS broke the 50 day on Friday, the first time since Sept. 1.
The RUSSELL 2000 and other small cap indices are now lagging and are now teasing a break of the 50 day.
I am finding a slew of names breaking support and/or moving averages.
So … before this Egypt news blew up, the market was already having some issues underneath the surface. The news just gave the market an excuse. I know OIL PRICES spiked on Friday but OIL PRICES have been rising for 2 years and are not even at recent highs. But I do understand. The news will be fluid and the outcome could have lasting effects. No one knows the outcome of all this. Democracy could flourish or bad guys could show up and take over.
The good news is that every other major index remains above the 50 day. The good news is that the SOX has been strong. The good news is there are still plenty of strong charts. But more distribution and a break of the 50 day should wake you up. Markets have been feast or famine for years…and if there has been any market overdue, it has been this one. At the very least, fewer and fewer sectors and fewer and fewer stocks are working. Going to be an interesting February.
Gary Kaltbaum owns Kaltbaum Capital Management, LLC (“KCM”), an investment adviser registered with the U.S. Securities and Exchange Commission. The opinions expressed herein are those of Mr. Kaltbaum and may not reflect those of KCM. The information offered in this publication is general information that does not take into account the individual circumstances, financial situation or individual needs of an investor. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.