The Market Remains in a World of Hurt
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 click here or call 888.484.8220 ext. 1.
For one day, I am going back to talking about the market… and forgetting all the noise. I will be back to blasting the players who caused this financial mess in a couple of days.
Now you know why it is more important to listen to the market… and not to opinions. In leading up to this bear market, I told all who would listen that when the next bear market hits, you will get no help from Wall Street. In fact, it is worse than I thought. It is worse because I have never seen so many pundits turn bearish at the lows… and claim how right they have been from the start. I have never seen so many pundits call the bottom so many times… and then conveniently forget their calls of a bottom. I have never seen so many just refuse to listen to what the market is saying. To this day, we continue to hear why CITI is so cheap… why the second half will be better… why the fed is on our side… why you must be invested before the turn comes. This is just all sheer nonsense. And frankly, at this point, you don’t need me to tell you why… as all our major financial institutions are seeing their stocks go down to unfathomable levels. But this report, my radio show… and my tv appearances have told you that this would happen.
Very simply, from my exhaustive study of bull and bear markets, the one characteristic that always has stood out… is how much the market will take things to the extreme… both up and now down. In the financials case, they topped out last February. From my studies, the groups that top out first and lead the markets down usually continue to lead the markets down… and as I said, to unfathomable levels. I predicted Countrywide Financial
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PowerRating) in single digits… I predicted Citigroup
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PowerRating) in single digits… not because of anything fundamental… but from my studies of bull and bear markets. This should serve as a lesson to you as disaster after disaster is now occurring in financial land… and it is not over. This is real dollars being lost if you have not taken action. I have spoken to many that have held on to a Bear Stearns because the people at Bear Stearns said everything was fine.
The lesson is simple… and it is a lesson I have taught for years… LIMIT YOUR DOWNSIDE! You should have learned that if a Worldcom can go to zero… if a Lucent can be bought out at $2… anything can happen… and we are now seeing it again.
Turning to last week’s action, if you took a trip to Tahiti… and came back this weekend, you would have thought nothing happened. Overall, the market finished the week where it ended last week. In fact, the NASDAQ closed to the penny from last week at 2212.49. But we know better. It was another ridiculously tricky week as the market teased the break of the January lows only to be blasted higher on Tuesday. This was followed by a stronger early Wednesday… before reversing down… followed by an ugly Thursday before reversing up. I believe the market was ready to rally Friday… but the Bear Stearns news killed that.
But notice that despite the awful news, the market has so far held the January lows. So let’s look at a couple of scenarios.
The first scenario would be my favorite scenario where more bad news comes out on Monday… causing all major averages to take out the lows intra-day causing panic selling. This leads into a high volume reversal washing out the last of sellers at the most inopportune time. This leads to a rally of unknown price and duration. This would not lead to a new bull… but a rally.
The worst of scenarios for the bulls is the market just break… and not rally… and start a new leg down. While I hate predicting these short term moves, my issue with the market just sinking here is that so many have now come to the dark side. So many that have been holding on to their bullish take on the market… have now converted. I very simply do not want to be in a room that is getting too crowded. When I entered the bearish room, there was just a couple of us… feeling lonely. Now the bearish room has no elbow room, music is playing and cocktails are being served. That sounds all well and good but when things get crowded, I am already wanting out. But I cannot get out until I see some light at the end of the tunnel… and so far, except for sentiment, except for the oft-mentioned continued bullish action in COMMODITIES of all kinds, I must stay bearish… but I am willing to turn.
Talking about sentiment… a few things are occurring at once.
Headlines are horrible. Local papers, local news, front covers, all news articles are negative… and I mean over-the-top negative about the collapse of the financial system as well as the upcoming depression. These headlines do not happen at the tops. On top of that, the bull/bear ratio has gone to bearish levels not seen since 1998. Furthermore, short interest is moving up, odd-lot short sellers moved to all-time highs and the VIX is finally moving higher. But remember, sentiment is called a secondary indicator for a reason. Price and volume always trump sentiment… but always something to watch when it starts to head to extremes. By no means is this a pinpoint indicator.
Longer-term, the market continues to have the same problems I have mentioned before. All major indices are trading below short and long-term moving averages… world markets continue to go for the ride,closing at lows not seen since July of 06… over 80% of stocks remain in a downtrend… out of about 200 groups that I follow, just a handful remain in good shape… and of those, all are COMMODITY based.
So short-term aside, this market remains in a world of hurt. This week will tell more tales as I expect Bear to be bought… the Fed to lower rates again (why not just lower to zero percent now)… a lot of chatter out of Paulson and friends and to put the icing on the cake, we may see other issues bubble up to the top as the crap is now starting to roll downhill. My assets continue to remain at or near their high water mark as I refuse to play into this nonsense. The market has absolutely no interest in being accommodative even on an intra-day basis. You go to sleep long… and the market gaps down 200 points. You go to sleep short… and the fed does another save… with the market rallying 400 points. To me, the market right now is like playing tic-tac-toe. You can’t win… so why play the game.
I will be back to my regularly scheduled program of blasting the financial geniuses who have been running the show… and running the markets into the ground in subsequent reports.