The bond market remains my main concern
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. Gary is also
editor and publisher of “Gary Kaltbaum’s Trendwatch”…a weekly and monthly
technical analysis research report for the institutional investor. If you
would like a free trial to Gary’s Daily Market Alerts
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or call 888.484.8220 ext. 1.
We get to start with the BOND MARKET again as the
10-year is now yielding over 5% for the first time since 02. We continue to be
amazed by the “don’t worry” crowd. In fact, we read three articles this
week that quoted pundits saying higher rates were bullish. Maybe they are right.
We repeat…we would much rather let the market decide whether these higher
rates are negative on the market or not. So far, we have experienced a small
correction in the major indices but a worse correction for the average stock. We
continue to be very bearish on BONDS. Short-term, a bounce could happen…but
that’s just the short term. It just looks and feels like this is a bear market
for bonds right now…and that is not changed easily.
No doubt…and as we have said, UTILITIES are definitely feeling the brunt as
they are one of the most interest-rate sensitive groups. It is important to note
that UTILITIES topped out in October. We tell you this because in many cases in
the past, the market topped out 6-9 months later. Hand in hand with the
UTILITIES are other INTEREST-RATE sensitive areas that we remain bearish on.
Firstly, HOUSING continues to croak. In fact, we are finding a few names at new
yearly lows. We would advise not to listen to the housing bulls out on Wall
Street. Inventories have spiked across the country and prices are now starting
to come down in many areas. Many of these publicly traded companies are marking
down prices. The stocks are speaking loud and clear.
For the first time last week, we started to worry about the technical condition
of the REITS. Well, all week, REITS tanked. Many are now trading below
moving averages as well as support. At the very least, we would continue to avoid. As
we said last week, money market rates are paying more than their dividends. If
that is not a wake up call, we don’t know what is. It is also important that you
recognize that over 30% of the S&P is considered interest rate sensitive. Stock
bulls just better hope that the charts of the stock market do not start looking
like the chart of the bond market. Do not ignore our thoughts on the BOND
MARKET. Stock markets around the world have not had to compete with higher rates
in a very long time. As usual, we will let the market decide how important
higher rates are. Already, interest-rate sensitive areas are buckling.
There is no question that the internals of the stock market have been heading
south recently. Recent A/D as well as NEW HIGH/NEW LOW figures have been less
than stellar. We are actually amazed how poor the NEW HIGH/NEW LOW FIGURES have
been considering major indices are still close to the highs. Just remember, tops
are not like bottoms in the market. Tops take time. Sector by sector and stock
by stock, the market loses sponsorship, culminating in the major indices
following suit. With the underlying deterioration we have been seeing, it is
imperative to watch the major averages here. We have already in past reports
alerted you to specific groups that were rolling over…but the important thing
you need to know…which so many bears as well as bearish technicians need to
understand…is that until support is broken on the major indices, the “market”
must be respected and would not get overly bearish just yet. We say this because
the market has defied corrections in the past and so far, all we have seen is a
small correction back down to
It is important that the DOW, S&P, NASDAQ and NASDAQ 100 remain above their
moving averages. Shorter-term, a break below 11,053 on the DOW and 1282 on the
S&P will lead to more downside testing. Both those numbers are below 50-day
moving averages. The next important support is 10922 and 1268. The NASDAQ and
NASDAQ 100, while losing traction, have held up better. First support lies at
2302 on the NASDAQ and 1696 on the NASDAQ 100.
As we suggested last week, SMALL and MID-CAP INDICES pulled back into their
moving averages…holding right where they needed to. In fact, the MID-CAP 400
touched the 50-day
moving average to the penny at 779 before bouncing. These
areas continue their uptrends with nominal pullbacks. We are going to watch
those uptrends closely.
The SOX remains weak. We don’t believe any move up in the market cannot have the
SEMIS going along for the ride. We still like names like
(
LRCX |
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PowerRating),
(
SLAB |
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(
LSI |
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PMCS |
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PowerRating) and a few others but many remain in poor shape.
We have mentioned the poor action in the BIOTECH recently…and for the most
part, nothing has changed. But…almost everything MEDICAL has been rolling
over. This includes HMOs and DRUGS which have been joining the ugly party in the
HOSPITALS. HOSPITALS have been in a bear market for the better part of a year.
We would continue to underweight these areas as they are in their own private
bear phase. BIOTECH may be oversold here so a bounce would not be unusual…but
until the action changes, it is sell the bounce.
The TRANSPORTS remain in fine shape, led by the RAILS and the AIRLINES. The
RAILS have pulled back as we suggested. We have liked the charts of
(
AMR |
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PowerRating),
(
CAL |
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PowerRating),
(
LCC |
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PowerRating),
(
UAUA |
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PowerRating),
(
GOL |
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PowerRating) and
(
LUV |
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PowerRating) in the AIRLINES and until things
change, feel they can be exploited. We find their action amazing considering the
price of OIL. This group may continue to pop regardless but if OIL can come down
from here…we would be really looking at this group.
Oh yeah, it’s earning’s season. As always, it’s not the news, it’s the reaction
to the news that counts most to us.
Gary