Aurora, Colorado

There were a couple things I thought about this weekend.

The first was those people that jumped on other people to protect them from the bullets and took a bullet for others. Think about that. You’re at a movie and out of nowhere, somebody’s shooting. And your first thought and your first decision is to protect others. Some of them weren’t even loved ones. An amazing story of courage.

And, of course at the same time, an amazing story of cowardice.

And they can plead insane – you name it. This guy planned it out. He’s evil. He’s a coward. He’s a punk. And I don’t know where else to go with this except to say, make sure you hug your children.

The Markets

Needless to say, it was a market that was trying to move above a little resistance and failed miserably. And now the market has tucked its head back into a trading range like a frightened turtle. As you know, even in the move up, I told my radio listeners that I did not like what was driving the move: Food, Drug, Beverages, Tobacco, Household products, Utilities, Telecom utilities, municipal bond funds, and REITs.

These are your defensive issues and believe the Big Money crowd is not investing there.  I believe they’re parking money there.

Just remember. Most of the Big Boys have to be 95% invested at a minimum and have very little cash. So we can recognize when they’re selling risk to buy into defensive, by watch the action. Typically, it is not good news. Typically, when defensive issues are being bought up, it is forecasting something not so good such as slow downs in the economy and outright recessions. And many times it is presage of a pretty good downturn .

 I also told you on the move up, it was the worst areas, like the Oil and Semiconductors, where it felt like there was a lot short-covering.

I also told you, at the same time, a lot of growth names were breaking down. But major average remained range bound.

So fast forward to Friday and today…and nothing but gross.

Today could have been a lot worst. We opened down huge and got back a little more than half of it.

Be careful, though. There are many who would say, ooh…we got back a lot of the down move today and that’s good news. I’m not so sure.

Chipotle and Intuitive Surgical

Chipotle (CMG) was down around 90 on Friday and down another 11 today. Intuitive Surgical (ISRG) was down about 45 and was down another 21 today.

I want to explaine to you how things work when a ”leading name that has to be owned” in which “nothing can ever go wrong” – goes wrong.  Listen carefully.

All stocks have a life cycle. You never know how long. But studies have shown that most big leaders will last for about 9 to 15 months.  But, of course, there’s occasions where an Apple (AAPL) has gone from 15 up to 600. And, of course, in the 1990s you had a few technology names that went up monumentally throughout those years. But all things do come to an end. You never know when. And typically they come to an end, almost the same way. So listen up:

Near the end, nobody thinks anything can go wrong. These are the big leaders. “Teflon stocks” for lack of a better word.

A stock goes through a life where it’s going up and up and up. All things are well in good. Chipotle came out at around 45 and initially ran to 150. Then came the bear market in 2008 and that took it down to 37 again.

Since the low in 2008, it went up almost 450 on the back of continuing to open stores around the country and elsewhere and with decent same store sales. And throughout that process, the Big Money crowd kept adding and adding…until they own everything.

And right when Chipotle reported their numbers, I saw that the Fidelity Contra Fund had 2.5 million of 31 million shares. And many other funds owned the stock as well. These are growth funds and they are also known as momentum funds.

They will ride something until death. But there’s usually a few months of distribution where the stock is held up even though you seeing signs of selling. And analysts are saying don’t worry, everything’s okay.

…Until finally they report a number they report a number that, for whatever reason, the market hates. And if you look at Chipotle, it topped out in April on big volume. They rallied it up on no volume. Dropped again and then sat around for many weeks, bumping its head above the 50-day moving average and then below.

But then something happened. On 6/27 and 6/28, the stock got schmered from 415 to 370 on very heavy volume. So already it was starting to underperform some. And it stated trading what I called wide and loose.

What happened then? The market got a little better. It rallied up on no volume. Saw a couple upgrades a couple weeks before earnings. And then the market didn’t like earnings and the stock closed at 405 and opened at 345 and finished at 320 and it’s now 306.

You know what that action is over the course of Friday and today? All these big guys with that stock knew they had to get out. Because once a growth stock tops and tops for good – it doesn’t come  back 90% of time.

And, of course, the same thing happened to Intuitive Surgical. 


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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.