Kaltbaum: The Market is Getting Tougher
Gary Kaltbaum is an investment adviser 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.
To put it bluntly, regardless of Dubai, regardless of the many negative divergences and regardless of the many non-confirmations in the market, I would not be ready to say this market’s move has breathed its last breath. But as I have been saying, I am seeing early warning signs… starting most importantly with the FINANCIALS.
Most FINANCIALS have broken support and/or moving averages. Why is this important? 2007! In 2007, FINANCIALS turned down first, months in advance of the major averages. So I would not shrug off their weakness that easily. On top of this, most often, FINANCIALS have been an important proxy for the whole market. I am not just talking banks but brokers, S&Ls and INSURANCE.
On top of this and to repeat, just take a gander at the chart of the RUSSELL 2000 versus the DOW. While the DOW moved to new highs this past week, the RUSSELL 2000 and other small-cap indices could not even get above the 50-day average… and every time they have approached the 50-day, they have sold off.  So the template of BUY THE LARGE CAPS… underweight the smallcaps continues… and this is just another early warning sign.
Other divergences and non-confirmations include the fact that every other major average did NOT move into new high ground while the DOW did. Remember, in the late stages of a move, money flows into the megacaps as money looks for more liquid and defensive areas. Have you noticed the better action in FOOD, DRUGS, BEVERAGES and TOBACCO?
New highs have contracted markedly while the DOW went into new high ground indicating fewer and fewer names participating… another early warning sign.
On the sentiment front, more things to ponder.
#1… mutual fund cash is now very low nearing the 4% number indicating less ammo.
#2… still seeing many secondaries and a ton of insider selling indicating “the market” wants to raise money here.
#3… the percentage of bearish market advisors is down to 17%… indicating much too much optimism.Â
Soooo again… early warning signs. The market still has things going for it including:
Most major indices are above short and long term moving averages.
Except for Japan, world markets remain in shape… though most are correcting also.
The DOLLAR still looks fine… staying below the declining 50-day moving average. As you know, there has been a direct inverse relationship between a dropping dollar and a rallying market. If the link does not break, the day the 50-day is breached on the upside, look out.
December is typically a decent month.
Tops take time. Tops do not occur in a day. Tops follow a pattern where one by one, areas of the market roll over, leading to major averages following suit. So… pay attention. Early warning signs are there. I just don’t think the end is here yet… even with Dubai… which for me is no biggie. Just realize you will need to be more selective… just realize things will continue to be tougher to play. If other major averages start breaking, I will alert you.
Disclaimer:Â The opinions expressed herein are those of the writer and may not reflect those of Wunderlich Securities, Inc. or any of its affiliates. 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.