Double Yuck

For the past two years, we have been talking about Greece. The fear is that they leave the European Zone, and that it’s all going to blow up because everybody owns each other’s’ bonds. And people took their eyes off of Spain, Italy, Portugal and some of these other places.

In case you did not know (and this is such a shame), Spain has 24% unemployment. For teenagers, it’s 50%. And a lot of the reason why is the deals they cut many years ago on paying people and letting them retire at the age of 50-52 and giving them their salaries till death.

And the problem is that when you don’t have enough workers to pay for the retired, you end up with problems. Now on top of that in Spain, there is a huge plunging housing market and a lot of bonds that backed that housing market. That is plunging Spain’s banks into the abyss. So, all of a sudden, that bubbles up in the past couple weeks and we find out the banks in Spain are in need of a bailout – and they got one. The got a 100 billion Euro bailout which I think is about a $130 billion. And, of course, over the weekend…the markets said “we love this…it’s like the TARP.”

And the futures on the market were up around 150. As you know I don’t watch financial television. I can’t. It’s nothing against them. I just gotta keep my own thoughts in mind. I don’t want to be swayed and as you know, Wall Street is always bullish. They’re never bearish. “Everything is always going up. You always have to be fully invested. Don’t worry everything’s okay…even if your stock goes down 100%.”

I had a new client come in who had an account with somebody who owned a bunch of bank stocks. Three of them went down 100%. And, when asked how they could let them go down 100%. They said, “Well we don’t sell. We have a model portfolio.” Ain’t that deep.

Anyway, so the market gaps up on the news from Spain and I asked myself, “Why would the market be up?” Well, we now know that Spain, not just Greece, is in dire straits. Last I looked Spain was bigger than Greece. Not to mention, we know Italy has got problems. And Portugal has got problems. So I’m thinking to myself “Why?”

So I did it. I went against my own thinking and I turned out financial television and I gotta tell you…it was:

“You gotta buy. You gotta buy. You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy.  You gotta buy…..

Be in or miss. Valuations are cheap. Everything’s going to be okay. We’ll get past this. It’s all good.”

And, of course, there were some voices that were logical. I saw one guy who said that there was a lot of uncertainty out there and it was hard to tell. That’s the good answer. There’s a ton of uncertainty. Uncontrollable debt…it’s not good. It’s the killer of countries. It’s wiped out countries in the past.

So I came in to the office and the market was up 90 or 100. But then noticed something. The Nasdaq starting selling of. And as you know, for us the Nasdaq is the leading index. At all times it leads up and it leads down. And on top of that:

  • We’re still in a correction.
  • Every major average is trading below its 50-day moving average with a couple trading below the 200-day.
  • There’s still a clear lack of leadership out there.

So here’s the short version. The market had a vicious, ugly, yucky turnaround, finishing near the lows of the day on distribution day in the Nasdaq as volume picked up from Friday. NYSE did the same.

And when I did my scans after the close: Let me be crystal clear on what I’m seeing.

Not good.

You know we had that rally last week and you get some hope. And you hope. And they just distributed the strong open today.

Forget the numbers. Think of the physicality. Imagine you’re climbing a ladder to the top of something and every time you get near the top, there’s somebody up there with a mallet who just hits you right on the head and knocks you down. Well I got news for you, there’s about a hundred mallets up there knocking the market down. That’s what happened today.

They distributed stock into any froth open and that is not a good sign. And when I looked at the patterns in the market at the close today, DOUBLE YUCK.

Now I think the lows of last week are going to hold for now. I think.

Before today, I would have said, I’m pretty sure they’re going to hold for now.

I don’t think I’m pretty sure any more.

And obviously, if they break last week’s lows, there’s going to be more heck to pay. 


6-7 pm EST

Best of Investor’s Edge
Saturdays 1-2 am EST

Gary Kaltbaum owns Kaltbaum Capital Management, LLC (“KCM”), an investment adviser registered with the U.S. Securities and Exchange Commission. The opinions expressed herein are those of Mr. Kaltbaum and may not reflect those of KCM. The information offered in this publication is general information that does not take into account the individual circumstances, financial situation or individual needs of an investor. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.