When Everyone Is Nuts, Here’s What I Do

  • December 16, 2002
  • Gary Kaltbaum


On my Nov. 30 FOX NEWS CHANNEL appearance, I
talked about the fact that risk had picked up…I talked about the excessive
speculation in the market only six weeks off of a six-year low…I talked about
the fact that the markets were overextended in price…and I talked about the
complete reversal of pessimism into optimism in short order. My good buddy Joe
Battipaglia (No, he doesn’t know me, but I have to be nice. He is 6’8″.) said it
was a positive that people were speculating. He has not read the books I have
read.

This led to my report on that Monday telling you to start looking for chinks in
the armor. My subsequent reports have become more bearish as the market has
unveiled some ugliness. That’s all in the past now. Let’s look at the tape.

GOLD is busting out.

The
DOLLAR is breaking down.

The
SEMICONDUCTORS (SOX) — which I have told
the world to watch as they continue to lead the market up and down — are
gagging and are within a point of breaking down through a reverse cup and
handle.

The
S&P 500 breaks below support at 892 and is
now below the 50-day average. A break below 872 and a potential big ouch can
occur. The Dow now sits at the 50-day
average. A break below 8298 would probably coincide with the S&P 500’s break.
The Nasdaq is just above the 50-day, but
broke last Monday’s low by a shade. Next support is at 1320. If these levels are
breached, then I would expect much more trouble heading into the new year.

A few
thoughts…


  • Many past leaders have
    broken down. UMM…this is not supposed to happen at the start of new bull
    markets.

 


  • BROKERAGES…normally
    a pretty good proxy for the market…have been under pressure.

     


  • At the same time that
    the charts are showing disturbing patterns.

     


  • The percentage of
    bullish advisors is above 50%…bearish advisors are at 24%…a one-year low.
    This is in stark contrast to just about five weeks ago. When this “wrong-way
    crowd” goes to extremes with their opinion, just go the other way.

     


  • PUT/CALLS remain
    complacent.

     


  • The VIX and VXN
    continue to have low readings.

     


  • Everyone is talking
    about a strong December and seasonal strength.

     


  • Everyone is talking
    about the fact that there is no way the market will be down four years in a
    row.

     


  • In my
    opinion…”everyone” is nuts. Never join everyone.


So what to do?

As I have told you in the past, I can gauge the markets better by the rallies.
Last week’s attempted rally was anemic. First off, if the markets can’t rally in
what is typically a strong “Santa Claus” rally, then you may want to look for
the lumps of coal in your stocking. In the years where there isn’t a rally, the
next few months are “yonk.” Just take a gander as to what happened after
December 2000.

Secondly, except for GOLD, I am not seeing powerful moves to the upside. For
sure, there has been good action in the more speculative sectors I have
mentioned in past reports, but most of those were stocks coming off of their
multi-year lows.

Continue to go slow. Yes, the market has worked off its overbought condition
from two weeks ago, but that does not mean the market has to rally. I am back to
seeing a lot more stocks in poor technical shape than in good shape…and
sector-wise, I have been telling you about the split tape.

I am getting asked about whether the market could resolve itself back to the
upside. The answer is always yes. I have been doing this long enough to know
that anything could happen. But…if the charts have anything to do with what
happens, odds favor…at least for the time being…no way.

In my next report, my annual dissertation on secrets of success.