No Surprises
The past couple of weeks’ action
rates a big “yikes.” But readers of this column,
subscribers to my service and listeners to my radio show have not felt
any pain…that’s if you have listened and stayed in gear. The charts
have been working almost perfectly for me and
continue to not let me down.
Very simply, I am not surprised at all what’s happening. I
am surprised, though, that it has happened in a straight line with nary a
respite. If you recall, I told
you recently that I could not find one sector or one stock that
looked in good shape…which has never happened before…leading to this
latest carnage.
Before I get into the short-term — which I believe will
continue to be all over the map — let’s talk long-term.
NOTHING HAS CHANGED! What was once a vicious bear market
for TECHNOLOGY
stocks has now spread to every corner of
the market. There has not been one stone
left unturned. I still remember the talk of value stocks. I still remember
the talk about mid-caps. I still remember the talk about small-caps.
Not anymore. So remember, regardless of what happens
on Monday or Tuesday, there are just
too many negatives long-term to overcome.
All major indexes are below their respective 200-day
averages…a definitive sign of
a bear market.
Ninety-nine percent of all sectors have topped…OK,
that’s being too nice…they are in major
downtrends.
World markets are going along for the ride. OK…Thailand
is doing well, but I couldn’t
even find it on a map.
All the major indices’ advance/decline lines are now at
multi-year lows.
There is a lot more, but that’s enough fuel on the fire.
Now for the short-term…which is much trickier.
I have been telling you that TECHS
would start to display better relative strength
than the Dow and S&P-type
stocks. That’s exactly what’s going on as the
Nasdaq was down less than half as much as
the others. I basically saw many
techs holding recent near-term support while the rest of the world was
breaking down…thus the call. I just don’t
think there is much to do there because
the charts are still in poor shape. But I will say this…if at any
point, near-term, the Dow decides to take a
vacation from its cliff dive, I believe
the techs could get a leg up, but I don’t expect it to last. Rather,
it would just be a rally into resistance.
OK…OK…the market is the most oversold we have seen in
years. I keep hearing this in my
ear every day. On a price basis, I don’t think I can disagree.
But I do have my issues with all this talk about “oversold” and
“capitulation.”
First off, I believe I am the only one with issues with
the words “oversold” and
“capitulation.” My big problem is that the whole world is talking
about those two words. I have heard the word capitulation more than I heard the
name Osama in the last few weeks. You know I
am right because I watch the same
things you watch, read the same stuff that you read and listen to the
same yappers that you listen to. So, let’s
break down all this sentiment stuff
one by one.
All the zipperheads on TV are calling the last two weeks
capitulation and saying that we are close to the end of the bear market. THEY
ARE WRONG. FLAT OUT WRONG. Bear markets like this one do not end with
panic selling. Bear markets like
this end when everyone is worn out. Yes, worn out. That takes time.
New bull markets do not ring bells at the lows. The
bottom will be quiet and doubted by
all. All I know is that on every bounce, too many pundits have used
the word bottom. They are hopeless optimists when they need to be realists.
To put it in one statement, bottoms are a process, not an event.
Panic selling will only lead to bear market
rallies/bounces. In fact, this could
come any day. But how many times have I told you not to play any rallies
recently? The answer is quite a few…and who has been right and who
has been wrong? The one thing you need to know
is that the next rally could be a doozie, maybe 10% for the indices because the
drop was so huge. Keep in mind,
that only takes you to 8800, 930 and 1450 for the Dow, S&P and
Nasdaq, respectively. It would not change the
major trend. This does not necessarily
have to happen, but the nature of bear market rallies is that they
are sharp, quick, make you feel good, get everyone talking about it and
bury you just a few weeks later. After the
latest drop, a bounce of larger magnitude
could be in order.
Now let’s look at all the other so-called sentiment
indicators that people are holding their hats on.
ARMS Index — This has
actually been called the perfect indicator because it supposedly,
until the last year, never failed to call a new bull market. Well, it has hit
its highest readings in history several times in the last year
with nothing doing.
Investor’s Intelligence
— Finally…finally…newsletter writers, aka the Wrong Way Crowd, are more
bearish than bullish. It took a 75% drop in the Nasdaq, a 40% drop in the
S&P 500 and the recent 1300 point two-week bungee jump
in the Dow to get them off their butts. Keep in mind, this is a lagging
indicator and is still far from where it needs
to be. Bears are only at 39%. I want
to see 50% or more.
The VIX — My biggest
problem with the VIX is that it has been rising since the beginning of June to
no avail, but definitely moving into territory one wants
to see for a turn.
Front covers of magazines
— It has finally happened. Business Week has the cover
of a bear, usually a great contrary indicator. Two problems. First,
everyone is talking about it. Second, it was a
positive article. It talks about what has happened recently is ultimately good.
Sorry, I want another cover
entitled: “THE DEATH OF STOCKS”…just liked they published in 1982.
Barron’s also had a cover of a tied-up
bull, but the article was about what was attractive
to buy…right now.
Stock market headlines were on the popular media’s mind.
This could be contrarian, but
one more big problem. Every show paraded a bullish strategist out…no
bears. In fact, CBS’ “Face The Nation” brought out Abbey Joseph
Cohen…the poster child for a well-paid
strategist who doesn’t know a bull market
from a bear market. Amazingly, she stated that she went bearish in
March 2000…when the only thing she did was
lower her tech weighting. She forgot
to talk about her 1600 S&P price target. Maybe I am nuts, but during
this tough time shouldn’t they have someone on
who called the last two years correctly
and not someone who buried everyone and still has not used the words
“bear market”? I hate to be like this, but if I don’t talk about it,
who will? That’s why I am a radio guy.
Keep in mind, all this talk is just that. I am always
going to let the market be my guide. It is the only opinion that counts to me.
It is the final arbiter of
value, not someone’s opinion, hope or prayer…and there is enough
of that going on. I would just tell you to get
ready for anything this week. It
will probably be on the wild side. The worst thing for the market
is to bounce right from here. It would just lead to more and more carnage.
Believe it or not, the best thing would be for a mini-crash right out
of the box to really clean out all the sellers for the near term. Should
be fun. Put on your seat belts and get out your shark repellant.