Wondering What To Do Here? Try This…
I received a zillion
emails this weekend. The emails ran the gamut of…”the market is
about to crash” to “the market has been so bad, the bottom has to be near.” Others
told me that the ADVANCE/DECLINE figures are at washout levels while a few told
me the A/D means we are back in a bear market. I love opinions but as far as I
am concerned, you would be better off listening to Dr. Phil tell you how to
lose weight.
THE ONLY OPINION THAT MATTERS TO ME IS THE
MARKET’S…AND AS I HAVE SAID BEFORE, THE MARKET IS SPEAKING LOUD AND CLEAR. IN
FACT, IT IS SHOUTING AT THE TOP OF ITS LUNGS…AND IT IS NOT PRETTY.
I once again, urge you to print out all of my
reports since
January 16,
2004. I have! The reports are a great indication that you
really don’t need to know where the market will be at the end of the year. You
just need to know what’s going on right now…to stay just a step ahead. Little
by little, inch by inch, piece by piece, we have picked apart the market and
uncovered some of the worst deterioration since 2000. GOLD/SILVER, SEMIS, REITS,
BROKERAGES, MORTGAGE-RELATED, FINANCIAL, RETAIL, AIRLINES, TECHNOLOGY, CHINA,
BONDS, BOND FUNDS…the list goes on and on of the areas that have been trashed.
In the past week, it has only become worse.
I told you a couple of things would happen.
Firstly, odds favored the bigger indices would start playing catch-up… they
did. Secondly, I told you of impending problems for the OILS as everyone is now
bullish…after a move to $40. On cue, OIL stocks are now breaking down as the OIH broke support. But that’s the least of the worries. Time for some stats and
some charts.
While everything is becoming very oversold and
due for a bounce, you need to recognize it would be just that, a bounce. The
tape is horrid and deteriorating by the day…AND MUST BE TREATED WITH THE
UTMOST OF RESPECT. Any bounce that could occur will not be a good one because so
many stocks and sectors have broken support. That leads me to the two most
important points:
^next^
- Throughout the bull move, at least 7-8 out of
10 stocks were in good technical shape. I would suggest that maybe 4 out of 10
are in good shape…and that may be a reach. If there is any one indicator you
must be focused on, it is this one.Â
- There are now more groups in bear markets than
in bull markets…and that is a stark change from the bull move. The numbers get
worse and worse by the day.
Let’s add a few more fun thoughts.
The NEW HIGH LIST is now a vast wasteland. You
can find strength in some DEFENSIVE areas like FOOD, BEVERAGE, HOUSEHOLD
PRODUCTS…but that’s about it.
The NEW LOW LIST has been gaining names quickly.
Keep in mind, it is skewed by all the PREFERREDS and BOND FUNDS that have been
blasted…but it is still important. Their drop is in direct proportion to the
bond market…which always has a huge say with the stock market.
- Four percent…what’s that? Mutual fund cash is down to
4%…right where it was when the bear market started in 2000. - Secondaries are coming out too fast and too
often. This soaks up liquidity. - Volume remains high on the down days…and light
on the bounces. - World markets are going along for the ride. Some
countries, like BRAZIL, are crumbling. - Breakouts…what breakouts?
The DOW and S&P 500 are now headed for the March
lows…as are the NASDAQ and NASDAQ 100. This was inevitable. Let me be clear. A
closing break below March lows…well, I will let your imagination run with it.
Here are the numbers to keep your eye on…DOW 10007, S&P 500 1087, NASDAQ
1896 and NASDAQ 100 1400 near-term and more importantly 1368.
That leads me to 3 questions I was asked:
Q: Is there anything that can change the tide of
this market technically?
A: Yes…with a caveat. If we could get
one of those big down openings…like 200-300 points…with a good dose of panic
selling…and then finish near flatline, I would suggest that the market was
sold out in the near-term…but only near-term. I do not believe any subsequent
rally would be strong and long-lasting.
Q: Can the market crash?
A: If there is any market that
COULD waterfall at this point, it’s this one. I would not be surprised if we see
a quick 5%-7% downdraft at any time…but we’ll let the market decide that one.
Q: Is there anything that is acting well?
A: Besides
DEFENSIVE areas, I do believe the SEMIS finally want to catch a bid. I told you
that on
Friday morning
and that’s exactly what happened as the SOX was up Friday
even though the market was trashed. I would not be surprised to see some outperformance by the SEMIS here.
In any case, this tape is going to remain as
challenging as can be. I continue to believe you should just take your time…be
defensive and maybe just head to the beach with your surfboard.
Gary Kaltbaum