Ouch!
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. If you
would like a free trial to Gary’s Daily Market Alerts
OUCH!
“The sea was angry that day, my friends, like an old man trying to send back
soup in a deli.” Goerge Costanza from Seinfeld.
I love that quote. It describes what we are seeing in the market right now.
Let’s backtrack.
I have told you several things over the past month.
Fewer and fewer stocks were carrying the market. Even if the major indices go
higher, this type of negative divergence is classic late stage action.
CONSUMER areas like RETAIL, GAMING, HOUSING, RESTAURANTS and the like were
already in their own private bear markets. In fact, miscellaneous FINANCIALS,
HOTELS/MOTELS, AUTOS, AUTO PARTS, AIR FREIGHT, ALUMINUM, BANKING, CHEMICALS,
MEDIA, MORTGAGE-RELATED, NEWSPAPERS, PAPER and S&Ls were also in downtrends.
To watch these important support levels: Dow 10,350…NASDAQ 2093…S&P
1200…RUSSELL 645…NDX 1551.
To overweight GOLD, METALS, OILS and other COMMODITY areas.
WORLD MARKETS were rolling while our market was lagging the rest of the world.
Some of this changed on Tuesday as I reported to you that I thought OIL STOCKS
had topped. Not only did they top, but they were whacked as the momentum crowd
headed for the hills…and quickly. Other COMMODITY areas followed suit. That
led to another massive selloff by the market. Now what?
Nothing changed for all the sectors that have been in their own private bear
markets. They just continued lower. It was the COMMODITY areas that are now
doing the damage.
The DOW has penetrated 10,350. The S&P sliced through the 1200 area. The RUSSELL
now sits right on support at 645. The NASDAQ and the NDX are now getting close.
Very simply, you should have already been out of the way of the many areas in
downtrends. It is now time to be wary of the areas that HAD still been working.
WORLD MARKETS are now starting to come in a bit…but so far, they are just
pulling back from extended conditions.
The major indices are already oversold…so a bounce may already be in
order….but at this juncture, unless the market experiences one of those
monstrous positive reversal days, I would say odds favor some more downside
work. The tape is that much of a mess. I know there is still leadership but if
the ugly continues, the market will come get them all.
I usually don’t deal with whys…but I have a theory about the Fed and the
problem they have now come up against. For too long, the Fed had said there was
no inflation. Even though OIL PRICES kept skyrocketing, they kept saying there
was no inflation. Well, they have finally realized that OIL goes into just about
everything we use and that these higher prices have to be passed on somewhere.
The FED believes the only way to control inflation is by slowing the economy by
raising rates. I disagree but hey, I don’t run the FED. Their other problem is
that the business cycle is winding down as even before the hurricanes, economic
growth was slowing. You don’t need me to tell you this…just look at the action
in the CONSUMER stocks. The FED now has to decide between slowing the economy
too much…which they are famous for…or potentially letting inflation get out
of hand. They have put themselves in a box…and I am not sure how they get out
of it.
There are other things that worry me like an out of control government that is
quickly losing all of our confidence and you can see there are challenges ahead.
I am an optimist but I am also a realist. Just continue to follow the bouncing
ball and you will be fine. But if the markets continue to be under pressure, do
not just sit there.
Gary Kaltbaum