PRE MARKET

Futures are down a bit.

Strong Japan down 300 overnight. Europe weaker.

Bonds stronger, yields down…meaning financials pull back. There has been a direct correlation with higher rates on the long end and higher stock prices.

Just remember what we have written in past days about internals. It does not have to lead to anything but corrections usually start with internals heading south.

Earnings this week:

Tuesday: Before open: AAP, DKS, HD, TJX

Wednesday: Before open: TGT  After close: LB, NTAP, NTES

Thursday: Before open: BBY, PLCE, VIAB, WMT  After close: AMAT, CRM, GPS, MRVL, ROST, WSM

Please check dates as dates can change.

 

 

GARY K WEEKEND NOTES

Firstly, over the past few weeks, we have seen several famous pundits come out and state that the market was headed for a bear market. Not an ordinary bear market but a bear market in the neighborhood of a 50% drop.  They could be right. After all, we are the ones who have been saying we are in the midst of a big central bank-induced bubble. After all, we have never seen central banks keep rates negative and near 0% for this long. After all, we have never seen (depending on which abacus you use) $15-20 trillion printed in order to keep asset prices on the move. After all, all we have seen since the great easy money experiment, started by Greenspan, is booms and busts. You remember 2000-2003? You remember 07-08? You had better remember. But that’s not our point. Again. They could be right but they could also be wrong. So instead of worrying about it, do like we do. WATCH THE MARKET. It will tell you everything you need to know. Let’s just say the market just topped and we were going to go into a protracted bear market. We know several things have to happen. If they occur, we will know something is up. The first thing is a break below the all-important 50 day average for the major indices. So far, only the TRANSPORTS are in trouble. You would then have to breach levels as more and more names break support and more and more sectors do the same. For example, the DOW would first have to break the 50 day average at 21,760. You would then have to breach the breakout at 22,500. You would then have to break below support at 21,600 and then the longer term 200 day moving average at 21,500 and then break next support at 21,2000 and then…you get the hint. We do not have to worry about “the grand call!” Just know bear markets always have the same characteristics when they show up. We have studied every bear market in history and expect to be ready whenever the next one decides to show up.

Meanwhile:

Recently, we have been telling you the internals of the market have turned south. We say this knowing the Dow, S&P, Nasdaq and NDX are not even down 1% from recent highs. But again, underneath the surface, there are some issues. To repeat:

The TRANSPORTS remain weak, nicely below the 50 day average. We are not the biggest believers in the Dow Theory but this is always important to watch.

SMALL CAPS are again under-performing. Seems any weakness in the market is led down by the small caps.

JUNK BONDS remain weak. We continue to believe this is one of the most distorted markets out there as investors have very little in the way of risk-less income investments…so they reach.

On Thursday, there were more new lows than new highs on both the NYSE and NASDAQ. Quite amazing considering major indices have hardly budged. This just tells you internals have weakened.

REGIONAL BANKS remain weak. The good news is that the big names, while weakening, are still above support.

Only about 60% of stocks that we scan are in good mode here. This should be higher. The good news? 60% of stocks are still in shape.

Some of the sentiment indicators we follow are off the charts bullish. The percentage of bullish market advisors is up over 64%, the highest number since (dare we say) 1987. On top of that, insiders are now selling at a serious clip with very little insider buying. Sentiment in itself does not cause markets to go down but should be in your file manager.

So…a few complaints but again, major indices have hardly budged. On top of that:

While there have been a good amount of earning’s blow-ups, there have been plenty of gaps to the upside as well as many good reactions.

On top of that, ENERGY continues to act well but would now look for pullbacks. Energy was an anchor for the market for a good long while.

SEMICONDUCTORS remain strong but as about as extended as they come.

WORLD MARKETS remain strong with Japan en fuego. (See what central bank buying does!) Near term, we are also seeing pullbacks telling us a little caution here.

HOUSING remains strong with nary a pullback. This in spite of possible issues with the tax bill.

Other areas that remain in shape:

CONSUMER FINANCE, ELECTRONICS, GAMING, INSURANCE, INTERNET, MACHINERY, MANAGED CARE, MEDICAL EQUIPMENT and SUPPLIES, TECHNOLOGY (many areas), SOLAR, UTILITIES and now starting to see a bunch of REITs shaping up and breaking out.

Rough day but could have been much rougher. Major indices came back a decent amount off the lows. Just recognize, there is distribution up here. It does not have to mean anything. Just a point in time where the overall settles down and has normal pullbacks but:

To repeat:

TRANSPORTS now below 50 day. We alerted you to the weakness days ago.

SMALL CAPS again under-performing. Seems every time the market decides to give way even in the slightest, small caps lead down.

JUNK BOND proxies continued weak action. You know what we think of the ultimate outcome of this distorted market.

There were more NEW LOWS than NEW HIGHS on both exchanges yesterday. Wow!

And bullishness remains rampant.

The good news is that other major indices have hardly budged. Leading stocks, while some pulling in, remain strong.

NVDA gapping up this morning….again.

ROKU stood out for us yesterday. Strong sales growth but beware, still loses a ton of money.

PRE MARKET NAUSEA

Futures are down decently this morning.

Recently, we had been telling you about a bunch of divergences in the market. Namely:

Advance declines not keeping up.

Anemic new highs vs new lows.

Small caps again underperforming badly.

Transports breaking support and the 50 day moving average.

Regional banks rolling over badly with bigger banks now following.

Junk bond proxies breaking support. (THE BIGGEST BUBBLE IN THE WORLD!)

But other major indices have been just fine but it is in the declining internals that give clues. So we start out ugly today. As we have told you, we are waaaaay overdue. Typically, markets back and fill their way higher. Recently, there has been no back. At any given time, it would be normal to knock a few off the scoreboard. Stay tuned!

The reason given is the worry about tax reform getting done. The worry is that the recent elections can take the momentum away. We are not so sure. Markets do go down every now and then. But we do believe the tax bill is suspect at best. We will have our thoughts on the tax bill as well as recent elections in a report tonight.

PRE MARKET

Futures about as flat as flat can be but:

COHR breakaway gap to the upside.

TTWO strong gap to the upside.

Other gappers are DXC, PLNT, MTCH, SYNA, REGN, HUM.

Not a lot on downside. SNAP whacked even though someone taking a position in company. WIX, WEN, MGM, DVA also down.

Just to recap yesterday:

FINANCIALS yuck day and to be watched. TRANSPORTS edge below the 50 day. RUSSELL 2000, which have lagged forever, may be rolling over…at least headed to the 50 day. DIVERGENCES showing up.

None of this means anything until major indices follow suit…and so far, nothing doing.

On the political front:

SOCIALIST party won a bunch last night. BUT…they won NJ…a blue state big time…and after Christie…blah. VA a blue state also…but message to Donald Trump. You had better get your “presidentialness” in gear. I personally know a ton of people who voted for you…who would NOT vote for you today…and they all say the same thing….”does not act as a President!” They think it is a toss up on policy….some good things, some things they are not thrilled with but this person thinks it is imperative to realize politics and elections are about popularity and momentum. There is no way to get any momentum when your poll numbers are in the 30s, when you call others SOBs, when you call out someone or something every week. I would suggest you read “HOW TO WIN FRIENDS AND INFLUENCE PEOPLE” and understand you get more when you treat better. I am not talking about the sleazy, slimy, corrupt media. They deserve to be ripped on.