“THE BEAR MARKET CONTINUES”
By Gary Kaltbaum
Fox News Business Contributor
We would like to tell you there was any good news in anything we are seeing in the market but sorry…no can do. In fact, we think things are just worsening. To get the shorter-term out of the way, after another nauseating drop, Thursday saw a nice reversal but Friday ended up less than stellar as the biotechs were again slammed, hurting the Nasdaq and Nasdaq 100 while the Dow finished up.
The big picture remains the same for us:
We remain in a worldwide bear market for stocks…notwithstanding the occasional bounces to the upside which only serves to relieve the drops. Bear markets that are global in scope are usually the worst kind.
We continue to see only about 1-2 out of 10 stocks in good shape. This is not the kind of number that lends to a market that is just in a correction like so many are saying. (and hoping for) Remember, for weeks and weeks, we told you the market was getting narrower and narrower as the indices were still holding up. It was just a matter of time before things caved in.
On top of that, we cannot even find on one hand the amount of sectors in good technical shape while there are probably 190 in bad shape.
Furthermore, all major indices trade below short,intermediate and long term moving averages. Speaking of the short term moving average (50 day moving average), it now trades below the longer term moving average (200 day) which is a major characteristic of a bear market. The rally that ended on Fed day…ended right at the declining 50 day average…another classic characteristic of a bear market.
So as you can see, we disagree with all those that say this is just a correction in a bull market. The average stock is much worse than the indices but suspect there will be more time and price for the indices to come. And if the major indices break below the August 24 scam lows, we suspect a lot more selling will show up as we will get into what we call the start of the “give up” phase. This is the phase where the world recognizes that this is for real, leading to more selling. You will then really start to hear the words “bear market” as major indices will then head into the 20% level which for most, defines bear markets. Do not forget, there is still a huge amount of margin and leverage in the system. They are your best friend in a bull but your worst enemy in a bear as margin selling exacerbates the drop.
But there is more to tell.
Though they bounced Friday, financials continue to act horrid. This goes hand in hand with bearish markets. On top of that, the semiconductors remain in terrible shape. These two groups, by themselves, have been the great forecasters of the market for years.
This leads us to the biotechs. The biotechs have been the strongest group of the bull market. We have told you that if they go, get the fork. The biotechs are now crashing…adding to the nausea. We also believe the rest of the whole healthcare complex has made a major top…which just adds to the misery. (We are sending you another report this weekend just on the biotechs as we saw this coming!)
Before the recent drop in the indices and on the last rally, we wrote to you that a select group of what we called “nifty fifty” type names continued to get huge money flows as fund managers had to find a place to park their money. We are talking about names like Amazon, Google, Facebook, Priceline,Expedia and a few others. These names have done a good job of holding up the Nasdaq and Nasdaq 100 better than the other major indices. After last week’s action, we now believe they are about ready to have their day in the nausea court. We think you will be hearing about this soon. Google and Priceline have already broken the 50 day average. The others look ready. And we couldn’t stop there as we have to mention Apple who is going to sell a lot of phones in the next few weeks. We are so far noticing Apple having trouble as it rallies into the 50 day. If it gets hit along with the others, say so long to the Nasdaq and Nasdaq 100. It is important to know that in bear markets, they get them all.
Lastly, we must mention the Fed. We are both perplexed and amused how anyone can believe what the Fed is saying and doing right now. All evidence at hand says the Fed wanted to stay at 0% (9-1 vote) but when the markets did not cooperate, they changed their stance quickly to the point they are all but promising a rate hike soon. (just like a politician) The problem with all this is we are now to the point that the market could care less what they say or do and suspect if markets did not like staying at 0%, they will hate any rate hike…even to 1/4%. In other words, they have really boxed themselves into a corner in which there is no way out. Keep in mind, the Fed is used to the market acting like a trained dog. Any time they said anything easy or made any dovish move, markets reacted positively for a very long time. They are not used to the market sticking the middle finger at them. Looks like they had better get used to it. We really hope they stay quiet as too much talk may cause more severe dislocations in the market.
“THE BIOTECH MELTDOWN IS AT HAND”
By Gary Kaltbaum
Fox News Business Contributor
First…our report from last December:
We have told you for quite a while that the biggest bubble in history is the bond market. Central banks have spent trillions to keep rates down. To their credit, it has worked. But the final outcome? Remember, all bubbles eventually pop…and they pop when everyone is on one side of the trade. We are already seeing a small pop of the bubble in junk bonds as yield and price have been distorted for the past few years.
This is a warning shot on another area. We have mentioned this before but have now dug deeper. But a disclaimer first. WE DO NOT KNOW WHEN THINGS END. BUT WE WILL BE ON WATCH FOR WHEN THEY END. We are talking BIOTECH. We are not talking about the Amgens or Biogens. We are talking about the lovely investment banking community that in their infinite wisdom has brought approximately 124 BIOTECH companies public in the past 2-3 years…with that number ramping up in the past year. This by itself is no biggie but digging deeper is a biggie. But first: Back in 98-99, as the bull matured, investment banks hurriedly brought a ton of internet names public. Many of them were suspect. Many were money losers. Some had no sales. They were able to bring these suspect companies public because the sector was hot and the public bought it. Remember, if there is demand, it will be supplied. Some of these companies doubled on the open and went up 5 and 10-fold. Of course, we know the final outcome. When things ultimately turn, the curtains come down. Many of those names are either gone or trading for pennies.
Fast forward to today. The hottest sector is the Biotechs. Many IPOs are coming public at $15…$25…and so on. The common denominator is most are opening strong. Some are doubling…some are tripling…some are even up more than that. But…ok, let’s capitalize it…BUT there is one huge issue. MOST OF THESE IPOs HAVE NO SALES. We did not say no earnings. We said NO SALES. A handful have a small amount of sales. All have massive losses. A quick glance of the total market cap of all these names is approximately $55-60 billion. Yes…$55-60 billion dollars of market cap with hardly any sales and a ton of losses.
We have no clue when the music stops. We just know that from the study of history of the markets, the music will eventually stop…and when it does, it will not be pretty. We are not telling you to buy, sell or hold. In fact, they can continue higher and we may just see a few buyouts. Yes…buyouts of companies with no sales is also a characteristic of bubbles. This is just a word to the wise as fear and greed look and act the same in every bull and bear market. Bubbles suck you in and then spit you out. Do not be the last one in. For now, the music is still playing.
Since that report, we have written at least 20 times that the Biotechs were the Internets of 1999…and that besides the bond market, it is the biggest bubble out there. That bubble is now bursting. And just to update, there has now been over 200 Biotech IPOs come public in the past 2-3 years…WITH NO SALES…foisted upon an unwary but greedy public that will buy anything that moves regardless of valuation.
Let us repeat…over 200 IPOs WITH NO SALES foisted upon an unwary but greedy public by the wonderful human beings at the investment banks that would bring public cow dung if they thought it would be bought up. The total market cap of these 200 names is now over $100 billion dollars. There have also been a ton of secondary offerings with some names having a whopping 5 secondaries in the past year. That’s the boys cashing out to the unwary. Wall Street actually brought out an ETF that was only for Biotechs that were in clinical trials. That’s how bad it has become. To add one more bit of comedy, we counted a couple of names that were actually bought for billions. We suspect those deals will get unwound.
Some of these names have already quietly dropped 50% from their highs. We think there is a lot more to go. Bear markets pull down the curtains of assinine, assiten, asseleven valuations and stupidity and this fed-induced bubble could be one for the record books when all is said and done.
We just know that from the study of past bear markets, companies with no earnings usually get slammed. Companies with no sales, once the spigot of secondaries stop, usually run out of money with many going bye-bye.
We suspect when all is said and done…well, just think pets.com, buy.com and the rest. And pets.com actually sold some biscuits.
Investor’s Edge: 09/25/2015