PRE MARKET

We left out one other rule from last night’s report. We cannot believe we forgot this one:

In bearish markets, rallies are sharp, quick, noisy, make you feel good, suck you in and bury you soon after.

That said, a 1.5%-2% gap to the upside this morning off of the rumor/news that the U.S. and China were in negotiations to open up markets. Duh! There was never going to be a trade war…just a bunch of positioning back and forth. Those who listen to the radio show and watch us on tv know we have stated that in the end, all parties know nothing good would come from a trade war and something would get figured out. We were in hopes that cooler heads prevailed with trade reps going behind closed doors and getting the job done. But it is not over yet.

Just be careful of these big gaps to the upside off of massive oversold conditions in a holiday-shortened, end-of-quarter window dressing week. Just remember, the Dow dropped 1400 points last week. Just remember, the NASDAQ dropped between 6-7% last week. We are already hearing that the drop is over because of the negotiations. We are all for that. Just let the market prove itself first. We are not so sure!

THE RULES OF BULL AND BEAR MARKETS

It’s time to repeat the rules you had better follow as bearish market action is much different than bullish market action. We have no interest in waiting for the pundits to call a bear market as they wait until markets are down 20%. Markets  are made up of thousands of stocks, a couple hundred sectors, a bunch of countries, size (large cap vs. small cap) and a ton of sub-sectors. There is never a point where 100% is in a bull or in a bear. Pay attention.

We start by telling you that in bearish markets, excuses are made by the people who stay bullish. IT’S THE ALGOS…IT’S THE BUTTON PUSHERS….IT’S THE SHORT SELLERS…MARKET IS NOT PAYING ATTENTION TO THE FUNDAMENTALS…blah blah blah.

In bearish markets, you will hear the following words: “CHEAP, OVERDONE, NOT REALITY, OVER-REACTION, VALUE, GARGANTUAN BARGAIN, IF YOU LIKED IT AT THE HIGHER PRICE, YOU WILL LOVE IT AT A LOWER PRICE, and our favorite…THE MARKET IS WRONG.

We are not stating these things to make fun of anyone. We are stating fact. We have studied not only the action of bull and bear but also the reactions. You must know that Wall Street has no interest in telling you markets are going lower. Their only interest is keeping you in. Do not have a short memory. We know it has been a long time. Rule #1…the market will do whatever it wants to do regardless what anyone thinks.

In bull markets bad news is good news and good news is excellent news. In bear markets, good news is bad news  and bad news is horrible news. A great example is FEDEX from last week. Reports perceived good numbers…the stock up $6 early…finishes down big and drops $12 the next day. That does not happen in bullish markets.

In bull markets, margin is your best friend. Margin is the leverage that fuels higher prices as leverage works. In bearish markets, it is your biggest enemy as the leverage has to come off first before the real selling gets going. Margin has been at all time highs every month.

In bullish markets, prices finishes strong into the close. In bearish markets, price weakens into the close.

In bullish markets, world markets are strong with less liquid, emerging markets leading up.

In bullish markets, the 50 day moving average is ascending with pullbacks contained above this  important line. Remember, the 50 day average is just price…adding up the past 50 day closes,  divide by 50 and get a smoothed out line. In bearish markets, the 50 day moving average is descending with bounces contained  underneath the line. Before that bearish occurrence can happen, price breaks the 50 day line. The line flattens out, rallies bounce up into the line before the line turns  down and then good night.

In bullish markets, the new yearly high list is plentiful. In bearish markets, the list is weak while the new yearly low list expands markedly.

At the end of bullish markets, the number of areas and names leading contracts while the indices stay up. This is the narrowing we have been talking about over the past few months. Remember, in recent weeks, we have been telling you the only games in town were the NASDAQ/NDX/SEMIS/GROWTH and to a lesser extent, the FINANCIALS. We actually told you if they go, the market goes. This week, they went bye bye. (More later on that!)

At the end of bullish markets, the biggest losers ultimately come from the previous biggest leaders because of how over-leveraged, over-owned and over-loved they are.

Bearish markets usually have 3 phases or legs to the downside. We mentioned this on tv and radio several weeks ago. Phase 1 started at the end of January. Phase 2 looks like it started this past week. Normally, these phases last a while. The first phase down lasted an abnormal less than 2 weeks.

Near the end of bullish phases,  bullish sentiment gets frothy and  speculative as all our indicators spike higher. Recently, we told you some of our indicators hit numbers not seen since 1987. Just reporting the news…not predicting anything.

Which brings us to the recent actions:

January 29…after sentiment became overly bullish, after margin hit record high after record high, after a few months of the market’s leadership narrowing, the market topped. After a waterfall, the market put in a high volume reversal low. After the low, the NASDAQ/NDX/SEMIS/GROWTH got the lion share of the move back up as they went into new high ground while nothing us did, creating major negative divergences. Last Monday’s action got us thinking “uh oh!” Wednesday’s ugly reversal day off of Fed day got the fork moving. Thursday and Friday’s action stuck the fork in bringing in phase 2. (Keep in mind, 3 phases are normal but in the case of 2000-2003 and 2007-2008, there were more!)

So…they got the Financials and they now got the NASDAQ/NDX. What really worries us is the tone of the drops. Don’t blame the algos because if you are going to blame them for the downside, you have to give them the credit for all the upside and there has been a heck of an upside. As we scanned a couple thousand names this weekend as well as 200 sectors and every country around the globe, we have one area that is holding up and that is ENERGY/OILS as oil prices have broken out to the upside. GOLD is strong but gold stocks were at yearly lows going into Friday.

We know you are hearing all the whys…tariffs, debt, deficits, turnover in DC, investigations and all that crap. We do not rationalize why. Debt and deficits have been out of control for years, tariffs have been promised for a while and investigations have been going on for thousands of Dow points. We care about price first, second, third, fourth, fifth as it is price what you get paid on, not opinion and not the news.

You are going to be bombarded with the words that everything is fine, that the market has had a big run and is way overdue. That’s fine. BUT AGAIN, we care about today and we care about price and price is speaking loud and clear. In case you did not know:

Consumer staples have basically crashed. Yes, food, drugs, beverage, tobacco, household products.

Financials cracked badly this week, especially the regionals. This is real bad news for markets.

The SEMIS cracked badly this past week.

Interest rate-sensitive stuff like real estate, utilities, housing and housing-related are already in their own private bear.,

Materials have broken the Feb 9 lows.

Metals and mining have melted down. US Steel dropped 15% in the past week and 30% in the past 2-3 weeks. Wasn’t steel supposed to benefit from tariffs?

Health care has been shredded.

Industrials have broken badly.

Foreign markets have been bludgeoned. Some very important markets like the UK FTSE are at new yearly lows.

Every DOW stock is now below support and the 50 day average. The DOW and the NYSE finished at closing lows of this move down.

We can go on and on. Do not believe anyone who tells you this is all normal, that this is all garden-variety and we will just go back up. As we have been telling you, there is more time and price. As we have told you, we guarantee markets will go down even though recent news shows a strong economy.

We have no idea how the near term plays out. The near term is the trees. The forest is the big picture and the big picture is decidedly bearish. Notwithstanding some violent bounces (and we will get bounces soon as the DOW dropped 1400 points last week),  markets are now in no man’s land and oversold off this recent drop, we repeat…we expect more time and price now that the last vestiges (big word) of leadership has gone by the wayside. It is also end of quarter window dressing this week into a holiday. Of course, window dressing is illegal so it doesn’t really happen. We would love to give you better news but markets do go down. We know many of you forgot. Markets do tend to condition people.

Lastly, we have used the following words a couple dozen times the past few years. We repeat them. WE CONTINUE TO BE WORRIED ABOUT ASSET BUBBLES CREATED BY CENTRAL BANKS WHO KEPT RATES AT 0% FOR 8 YEARS, PRINTED TRILLIONS OF DOLLARS AND ACTUALLY WENT NEGATIVE WITH RATES. IF WE ARE INDEED IN AN ASSET BUBBLE, WHEN IT POPS, LOOK OUT.

 

A NOTE ON ENERGY/OILS

While markets try to find their footing after another nauseating drop, we have alerted you to put energy/oils front and center for the first time in a while. While they came down yesterday in the 700 point drop, they are right back up again as oil prices head north. Just seeing a lot of bottoming patterns as well as a few names setting up well. Commodities are not the easiest play but keep them on your screen. A few names like FANG, APC showing great charts….but still no big leadership in the group as of yet.

PRE MARKET

Futures were way down overnight but are now flattish.

One would like to know what the short term holds. No clue. Don’t know. Quite random. Was actually asked what I thought would happen today.. No clue. Don’t know. Quite random.  But we do know the big picture worsened…simple as that…and whether we get a bounce here or further downside, nobody knows.

Take your time and don’t blink. Everything you need to know is in the price action and price action is poor. Heard a few too many people coming out this morning saying this is all about trade and tariffs. We disagree. We suspect this is about a big run that stopped on January 29th and now we have to go through some sort of a bearish phase of unknown price and time. Remember, in bull markets, markets will go up on perceived bad news. Things have changed. We could also tell you the spending bill, debt, deficits, the Knicks, the Giants and so much else that is affecting markets negatively.

Great example…FDX reports good numbers…up $6 early and finishes down nicely…and then drops another $12 yesterday. That does not happen in bull markets.

Will have a lot more over the weekend.

WHAT AUSTERITY…AND…A MAJOR TOP IN PLACE?

The money quote:

“For nearly a decade, the middle class in this country has suffered from a needless and self-imposed austerity, limiting investment of all the things that create good-paying jobs and improve the working conditions of Americans, improve the lives of Americans. This spending bill, this spending agreement brings that era of austerity to an unceremonious end and represents one of the most significant investments in the middle class in decades!”

Ladies and gents, look up the words FLIM FLAM MAN. I give you the words of Chuck Schumer. A FLIM FLAM MAN is defined as “a trick or deception, especially a swindle or confidence game involving skillful persuasion or clever manipulation of the victim.” In other words, (we do not have to be politically correct, the man is a liar.) This man has been front and center for years running up government spending, running up the size of government and running up our debt and deficits. In 2014, federal spending was $3.5 trillion. Last year, it was over $3.9 trillion. Next year, it is going to be $4.4 trillion. In 2023, it is slated to be $5.1 trillion AND THAT’S AUSTERITY? Is it any wonder where we are with our debt and deficits? The con game continues.

There is a damn good chance the next part of a major top is being put in place. We have been telling you things have been deteriorating again but not until the financials and the glamour growth/tech names gag will the market gag. They gagged.

Today, the financials broke important support. Today, the nasdaq and the ndx broke important support and to put it mildly, the ice got thinner. The dow and s&p already moved below support we gave you just yesterday. The nasdaq/ndx are still above but can come down in a hurry. Regardless, everything is turning down again and would not argue with price. Again, markets will drop even though all are saying it can’t because the economy is strong and earnings are strong. We guarantee you it can and right now, it is. As we scanned a ton of stuff while our flight to NYC is delayed again (what else is new), all we found were more and more names breaking below support/moving averages…and as we have been telling you, the market (except for the nasdaq,ndx and financials) was already very weak. Foreign markets are uglier. Seeing real ugly in industrials, healthcare, metals and mining and steel. Yes steel! Thought them tariffs was supposed to help!

We never know how exactly something plays out but so far everything we are seeing reminds us of every big top we have studied and experienced in the past. At the very least, a little defense remains your best offense. Will be watching next support areas closely.

YESTERDAY AND PRE MARKET

Futures this morning are way down. Time to do some recapping.

We have told you:

Over 60% of all stocks were in poor shape, trading below resistance and the all-important 50 day moving average. There is a simple thesis behind this. Trading below means you cannot go higher and as more and more names move to the downside, eventually under the weight, things head lower.

Major indices were still stuck underneath these areas but above the long-term support that held on the February 9th big reversal day.

The best areas continued to be the NASDAQ/NDX/SOX/TECH/INTERNET and just below that, FINANCIALS.

The worry has been the narrower and narrower markets as money would flow into select areas. But until they came after these leadership areas, markets would hang in this range.

Which takes us to this week.

Monday gross. Tuesday a non-event bounce…and yesterday, another ugly reversal to the downside. Remember, when a market is up 250 points and finishes down, it tells you that at those levels, sellers have the upper hand.

Which takes us to this morning…a large gap to the downside. Anything is possible in these central bank markets as we have seen plenty of reversals both ways but this morning’s action deteriorates the markets even further. It narrows the market’s leadership even further. And now, there is a decent chance FINANCIALS could be turning down. This would just be another in the negative column…a possible big negative. Which takes us to the NASDAQ/NDX. Both are sitting above support but any ugly from here will take them below. If that occurs, one has to ask where the leadership is.

On top of this, we have told you Europe has been leading to the downside, hardly bouncing while our markets bounced up. The LONDON FTSE is in new yearly lows. The all-important German Dax is not much better. Asia is also in trouble here.

We are constantly bombarded with talk that the market cannot go down because the economy is strong. As we have stated, yes it can. Markets are forward looking, not backward looking.  Please keep that in mind. Anyone noticing as the maniacal central bank raises rates, long rates are actually coming down? That’s a big hmmmm! We have also seen plenty of times markets get in trouble while the economy was sound. Keep in mind, we had a big 15 months into the end of January.

Now watching NASDAQ 7084, NDX 6645, DOW 24,217 and S&P 2647. That’s your next line of support. Keep in mind, that is not the Feb 9th, low. These numbers are that first higher low.

Lastly, and most importantly…as a fiscal conservative, as someone who believes government should not be spending a dollar they did not have, as someone who was confident that once Ryan, McConnell and the rest took over, as someone that thought something would be done about the out-of-control size of government, as someone who thoughT something would be done about the out-of-control deficits and the out-of control numbers ahead, we have two words for you and it is not happy birthday. You both are charlatans. You both let every taxpayer down. If the other party wasn’t so into socialism, I and many others would wish you out of power but you are now nothing more than the lesser of two evils. You have ensured trillion dollar yearly deficits as far as the eyes can see. You have ensured $30 trillion of debt as we move forward. You have ensured that in a few years, the first $1 trillion of our taxpayer dollars will go into the black whole of interest payments. We expected all this from the other party. We did not expect this from you. Or maybe it was wishful thinking all along. And maybe this is what markets are reacting to…

STUFF WE ARE WATCHING

A few things sticking out this morning:

For a change, oils/energy have the bid. The fact is oil prices have moved up recently while the stocks lagged. Today, the stocks play some catch-up. A glance at the OIH, XLE, XOP and you will see 6 weeks trading at recent lows. Draw a line under the lows. A break below and good night. But notice a better tone here.  The XOP actually on the verge of moving above the past 6 week’s resistance. A rally in this group helps indices it has hurt lately. We still find no leadership in the group but noting a few names trading above the 50 day. If a group is going to turn, we want to know where the relative strength is.

The same goes for commodities. Except for a SCCO, no leadership but definite better tone here. Most names remain below the 50 day with just a few names in shape. With these two areas bidding, will watch to see if the dollar is about to sell off again. Remember, the fed is today. Yippee!

Most all the semiconductor equipment names were initiated by an analyst with BUYS so they are bidding. Most just were in pullback mode.