Oversold, Yes. Bounce? Consider This…

Nothing I have seen changes my stance. The markets are on the defensive and
being distributed…and I am not just talking stocks. Bonds are going along
for the ride.

The main theme I want you to take from me is that this game is going to
continue to be tough. The market is in distribution mode and until we start to
see the opposite of what we are seeing, we must take a step back. MARKETS ARE
OVERSOLD. I told you that last time. All that means is that they have come
down too far…too fast. That doesn’t mean the market bounces. It means the
market has a chance for a bounce. Please recognize that oversold bounces in
poor markets are much different than  in strong markets.

As I have told you, the NASDAQ 100 and then the NASDAQ remain the weakest of
the major indices. This is normal as they always lead to the downside when the
markets get in trouble. I would be watching the 200 day moving average for
both. I suspect they are going to put up a fight there but I have to believe
you are going to see an eventual break.

The DOW and S&P are now starting to play catch-up but will always hold up
better than the higher-beta NASDAQ. The problem now is simple. More and more
sectors… and more and more names are breaking down on a daily basis. The
market does not have a chance if it continues to do this dance.

I believe we are in a broadening top for equities. Tops take
time. They tease the shorts as well as the longs as relief rallies suck
investors in. If the major indices break their 200 day averages, I believe, at
the very least, we will see something akin to last year…10% drop on the DOW
and S&P and 20% for NASDAQ-types. We will then reevaluate.

Let me be clear. OIL is at $57. I keep harping on the fact that I am hearing
too many say  that it will not affect  markets. IT WILL AFFECT MARKETS. OIL is
a lagging commodity…meaning it gets into the economy over a 9-12 month
period. It is a tax on the consumer and business. Earnings will come down
because business expense goes up. Be careful of the pollyanna-ish talk. Another
factor is the FED. They have raised rates 6 times and will raise again. The
FED raising rates has almost always led to lower equity prices.

BUT…no matter what…we will continue to let the day to day price and volume
action dictate policy. I do not believe you need to know where the market will
be at the end of the year…just what is happening today. Just remember, we
went defensive the first day of this year just based on what we were seeing.
Need I say more! 

Gary Kaltbaum