Take A Lesson From These 2 Examples

  • May 3, 2004
  • Gary Kaltbaum
Do you remember when I
told you that the dollar looked like, technically, it was
bottoming? A couple of days later, a reporter for the Wall Street
Journal wrote an article entitled, “HOW TO PLAY THE FALLING DOLLAR.” Of
course, the article was written AFTER the long slide the dollar had. Ever
since, the dollar has rolled to the upside.

Do you remember when I was telling you that TECH
was looking toppy? At the same time, there were 2 front covers of magazines
heralding TECH as a great investment. One cover was entitled” TECH IS BACK-HOW
TO TAKE ADVANTAGE.” The other was “10 TECH STOCKS TO OWN.”

 

I point this out for 2 simple reasons:

 

First, OIL PRICES have skyrocketed. I am now
reading “SEVEN OIL STOCKS TO BUY NOW.” The first line states…”Oil prices are
up. How do you capitalize on that fact?” Ladies and gentlemen, take a lesson
from the first two examples. You don’t buy a certain sector after it is
already way up and people are talking about it. I  have only seen a slight
pullback in OIL STOCKS…so far. BUT with this latest article, I would be
willing to wager we are close to the top.

That leads me into the front cover of Barrons.
It has a BULL throwing a BEAR off of a boat. It is entitled…”BEAR
OVERBOARD.” I have only one thing to say…be afraid…be very afraid! I hope
you got the hint.

 

Now…to our regular programming.

 

Nothing has changed. It has only gotten worse as
the market is following our script to a tee. BUT I must tell you, the damage
on the Nasdaq is more than I even thought for such a short time. Simply put,
the action in the Nasdaq last week was the worst I have seen since the big
bear and will not be undone any time soon. Let me be clear. As I have said, I
do believe the Nasdaq has seen the high for the cycle and is in its own bear
market. I know most say a bear market occurs only after a major index is down
20%. Not for me. The average stock is already there. I
WOULD CONTINUE TO COMPLETELY UNDERWEIGHT ANYTHING TECH/SEMICONDUCTOR
and the like.
^next^

If you have listened, this ugliness is passing
you by. About the only good thing I can say about the Nasdaq is that it is
oversold big time just on price. BUT, that doesn’t give it the right to bounce
as we have seen many times that oversold can become much more oversold. It is
a negative that volume has been big on the down days. It is a negative that
the SOX has broken March lows. It is a negative that the Nasdaq is now below
its 200 day average for the first time since the bull move started. It is a
negative that most ANALysts continue to come out defending everything in site.
My favorite of the week was when an ANALyst lowered the target on
(
FDRY |
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PowerRating)
from $32 to $15 but kept his BUY rating. Gee…thanks. Don’t mean to be so
nasty, but these people stayed bullish while the NASDAQ dropped 80% in the
last bear and will do the same again. You must listen to the market.

 

The rest of the market continues to go through the
topping out process I told you about. Please remember tops take time and not
all groups go at once. In this case, the market has gone completely defensive
as money flows are buying the Gillettes, Johnson and Johnsons
(
JNJ |
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PowerRating)…and
the like. I don’t know when or at what point, but if the action we are seeing
continues, the popular averages will follow suit to the downside. The Dow
already broke the first line of support at 10,250…but the more vital support
is at 10,007, the March lows. The S&P 500 also broke near-term support and has
1087 in its sight. A break below those levels and what has been a rotational
bearish phase will become something much worse.

 

Lastly, you also need to watch the smaller cap
indices like the Russell 2000. It and others are now giving way. This is in
stark contrast to the pullbacks of the past year that lasted a short time
before rifling back up.

 

This time is starting to be much different than
recent corrections.. Please do not try to be a hero. If this turns into a 
defined bear market…and odds favor it eventually will, it does not have to
be painful. Just step aside. I am always amazed how investors will just sit
there watching their accounts drop 35-50% and then be told  that everything is
OK. It’s just the market.  Bear markets do occur…and you should take action.
Unfortunately, Wall Street, for years, told you to just buy and hold. For
years, they had the market on their side. I believe that all changed in 2000.
If you have not learned what can POSSIBLY happen
from the 2000-2003 bear market, you may want to call your bank for CDs. I mean
that. I have met too many who lost 75% of their investable dollars because
they just sat there.  

Gary Kaltbaum