Short-Term, Anything Can Happen
It should now be crystal clear why we’ve been so worried about the action we
have been telling you about since the first day of the year. To be kind, in
the past few days, the market has been ripped apart at the seams. All of the
major support levels we have been harping about have been broken. Those
important support areas have now become resistance…and that is a huge
negative. But worse than the point loss for the major indices is the absolute
destruction in individual stock prices. As we told you in our last report, the
action in the indices does not begin to tell the story.
About the only good news is that we are starting to see the first sign of
panic…which somewhere along the line will lead to a good bounce.
BUT….don’t start playing the game most others are playing. Too many are
trying to figure out where and when the market is going to bounce…which is a
short-term phenomenon. The problem for the market now is of longer-term
consequence and has to be respected.Â
Before we get into the internals, we think it is important to know that many
are saying this move to the downside came out of nowhere. Readers of this
column and listeners of “Investor’s Edge” know this not to be true. We have
been highlighting the internal deterioration on a daily basis. We have
highlighted the ongoing poor A/D numbers while the major indices were holding
up. We have been highlighting the high volume drops and the low volume
bounces. We have been highlighting all the sectors that were breaking down
while the market was holding support. We have been highlighting the massive
amounts of insider selling. We have been highlighting our thoughts that the
only outcome of what we had been seeing was going to be lower prices. The
forensic work we do on a daily basis saw this coming weeks ago.
On a short-term basis, we must tell you anything can happen. We have little
conviction as the market can waterfall further here as well as pick up its
bootstraps Monday. The best guess is DOW 9900 and S&P 1110-1120 where maybe,
just maybe, the market will say enough is enough. But that is a guess. We will
be watching for another strong “reversal” day to tell us the worst may be over
near-term…but the market experienced one last week and failed badly. Even if
one occurs, we would sell or short into it.
Once a bottom is put in place, be very careful about what you will be hearing.
You will hear a sigh of relief as the perma-bulls will come out in droves
to try and save the day. We believe all bounces should be sold into
resistance…unlike what you will be hearing. We believe the recent support
levels that have been broken, will now become a ceiling…so do not play into
that game. There are just too many stocks and sectors that have broke
IMPORTANT support to turn this market around where everything will once again
will be A-OK.
It is true and evident that the market, sectors as well as individual
stocks are now stretched to the downside. If you recall, when the OILS were
stretched to the UPSIDE, we told you they had to revert to the mean…which
meant either a consolidation or a pullback toward their moving averages. The
OILS did just that as not only did they pull back, they are now part of the
ugly. We expect at some point that the market will revert back to the mean
…which means a bounce into resistance. The problem…we do not know from
where or when. We just know to kick back. We just know to sell or short the
bounces. We just know there continues to be risk as all we have seeing
recently is massive distribution.
Do not worry about the labels. Market pundits do not use the words “bear
market’ until a major index is down 20%. By the time the DOW would drop 20%
and then be called a bear market, it will be already in the bottoming process.
Ladies and gentleman, what we are seeing is bear market action for stocks.
Forget the fact that the DOW/S&P are down 8 and 7% from their highs
respectively while the NASDAQ is down 13%. The important fact is that the
average stock is much, much worse.
We were emailed a zillion times this weekend all asking the same question: are
we headed into a real bear market and how far down are we going? We believe we
are already in one. We believe the recent action completed the topping process
we told you was occurring…which odds favor, will lead to lower
prices. Another big negative is that WORLD MARKETS are now plunging in unison
with our market. Up until the past week or so, they had been holding up.
We do not know how low things will go or how long things last. As we told you
in January, we just know when risk has picked up. We will simply continue to
reevaluate as the winds blow. Pay attention to the market and do not pay
attention to opinion. The market is going to do whatever it wants to do
regardless of what anyone thinks. Our job will continue to be to interpret the
action and be just one step ahead.
Lastly, we were emailed a zillion times asking why this is happening. By the
time we all find out, the market will already be way down. We are still amazed
how many pundits are still out there saying everything is good with the
economy so the market will be fine. THE FIRST LAW OF THE THE MARKET IS THAT
THE MARKET FORECASTS THE FUTURE. IT COULD NOT CARE LESS ABOUT
YESTERDAY OR TODAY. If things get worse, we will find out in a few short
months what the reason is. We did not start to hear any bad news in the last
bear market until 2001. If things change, we will let you know.
Gary Kaltbaum