SHORT MARKET NOTES

By Gary Kaltbaum- October 19,2018

In a sea of red, in a market where the average stock is so much worse than the major indices, in a market where a laundry list of industries are at or near new yearly lows, in a market where Netflix gaps up 30 points on great numbers and gives it all back in a day…we’ll end the week on what is not necessarily good news but for bulls clinging to hope, some good news.
The good news is that the BIG 4, the DOW, S&P, NASDAQ and NASDAQ 100 are still holding the longer term support/200 day moving average. Of course, a break below and look out. But for now, still holding.
And one more bit of maybe good news. THE WHITE HOUSE IS WATCHING THE MARKET. For the umpteenth time in past weeks, whenever markets look to be in trouble,we get another timed announcement of a meeting with China…the latest one this morning. We thank the White House for watching and this timely information but eventually, markets will ignore…and if the market wants to go lower, these bumps off the news just gives the institutions higher prices to sell into.
Lots of earnings to deal with. Hope to not see more of Netflix, Snap On or United Rentals.  

PRE MARKET AND YESTERDAY’S BIG DAY

Our concise thoughts:

With yesterday’s action, we think the lows of the past few days hold for now. We would be surprised if it breaks any time soon. BUT…we do think we can pull back/retest. We say this because as we scanned 1500 names, 200 sectors, every country and every commodity, most stocks and stuff look like they just had a lower volume reaction to some serious ugly. We say this because there remains a clear lack of leadership. We say this because RUSSELL, MID-CAPS, FINANCIALS, SEMIS and so much other stuff trade below THE 200 DAY MOVING AVERAGE. So before you go out and call THE BOTTOM, relax. AND do not forget a few thousand names reporting earnings in the weeks ahead.

NFLX up nicely this morning helping the Qs but S&P down this morning. Big subscriber numbers helping NFLX out.

UAL,LRCX,WGO,VICR,ASML up…IBM, NTRS are down. HOUSING stocks being downgraded this morning AFTER a big drop.

And lastly, the president trying to assign blame to the fed. Mr. President, if 2% fed funds gets you worried, then we are really screwed. We’ll just leave it there by saying no president should be calling out the fed like Trump is. Imagine the fed raising rates a whopping 1/4 point and on that same day the president says it will hurt markets…guess what those words can do to markets?

 

THE 200 DAY MOVING AVERAGE AND WEED!

The DOW in March, early May and late June.

The S&P in February, early April and early May.

The NASDAQ in February and early April. The NDX in February, mid April and late April.

What do these dates have in common? For these major indices, it was the dates that each held the all-important 200 day moving average. This moving average is a longer term moving average that if broken, look out. It is a point that defines bull or bear.

Guess where all these indices are sitting in and around right now? Correct…the 200 day average. A couple are just above with a couple just below.

WE CANNOT BEGIN TO TELL YOU HOW IMPORTANT A HOLD WOULD BE HERE. If it does not hold, the big money would recognize it. The big money would recognize that on several occasions, it was able to make a stand. If broken, it would lead the big money to “give it up”…which means even deeper selling.

Keep in mind, so many other areas have already moved below, some far below. The RUSSELL 2000, the MID CAPS, the TRANSPORTS, the BIG FINANCIALS, the REGIONALS, the METALS/MINING, the MATERIALS, the SEMICONDUCTORS, the many FOREIGN MARKETS….so with so many in such bad shape, the market will not be able to withstand a break from the “BIG 4”.

We walk into another gap to the upside today as earnings season gets into full swing. We believe the big money knows how vital this support is and will do everything to defend. Just keep in mind that even if these major indices hold here, the broad market and the average stock is in much worse shape than these indices evidenced by all the other areas we listed. It is definitely goal-line stand time.

The best looking patterns remain in the asininely valued MARIJUANA  stocks. It is not very often froth stays frothy as markets head lower. TILRAY (TLRY) trades with a$17 billion market cap with only $25 million of sales while incurring losses. CANOPY GROWTH (CGC) has a $12 billion market cap with $90 million of sales while incurring losses. That did not stop an outfit from putting a BUY on TLRY this morning. Just remember, in the end, valuation will matter. While froth pervades the air, valuation is thrown out the window. Just remember what we told you about all those coins while they were going parabolic. We know the weed business is different as maniacal governments move to legalize but ultimately, you cannot fit a 10 pound salami in a 5 pound bag. Valuation will matter.

 

 

 

WEEKEND NOTES AND PRE MARKET

Futures are down a wee bit after being down much more over night.  OIL and GOLD strong out of the gate. We have believed there is a good chance GOLD has turned a corner off of its recent lows.

WEEKEND REPORT

Two cents on what was said about Kanye. Do these people on a certain network who snickered, made fun of and amateurishly diagnosed a man and his past mental issues on numerous occasions even begin to realize that just months before, one of their own who they mourned on air, Anthony Bourdain, committed suicide? Guess not! We also guess  they did not play back the tape of themselves or they wouldn’t have repeated their folly the next night. Let us also not forget these same people kissed Kanye’s a— when he want after Bush years ago. Poltics! Makes hypocrites out of many and it is not just one side.
Comedic headline of the week from the NY Times and it was not political:
“INTEREST RATES ARE RISING. THAT’S OK!”
Don’t tell that to the $233 trillion of global debt which includes the $63 trillion of government debt. We cannot begin to tell you how foolish this headline and article is. Remember what we have been telling you for years. It is the easy money brought to you by the maniacs at the central banks that have enabled all of this debt as well as cover up the eventual downside of all this debt. It is the ever more easy money which cover up the early easy money. Eventually you run out of big enough credit cards to cover the previous credit cards.
Well, that was an interesting week.
Since the 4 big indices, DOW, S&P, NASDAQ, NDX were holding up so well along with many growth names, our hope was if we could get past the dreaded SEPT/OCT period, we could have a good end of year rally, albeit a narrow rally. Narrow is ok while things are working. Narrow is a warning sign when things start to head south. Something was up as soon as the RUSSELL and the MID CAPS broke support. Something was up as soon as our proprietary growth list started to give way. Something was up because even when those 4 main indices were still holding up, new yearly lows started to swamp the new highs, indicating a narrow market was heading south. Something was definitely up…which put us on higher alert on October 4th. Simply put, narrow markets are easier to sell off when markets decide to sell off.
We do not agree with so many that say this is just a blip and that the bottom is in. We do not agree with those that say this drop came out of thin air. We have highlighted for many weeks how underneath the surface, it was less than meets the eye. To our eyes, the only thing this market has going for it is on a short-term basis, it is beyond stretched, extended and oversold  On top of that, there was some sizable put volume late in the week indicating very bearish sentiment. But:
The short term is the trees. The forest is that our market is now starting to join the nausea of most  world markets. The forest is that every major index has broke support and the 50 day moving average with
some below the longer term 200 day average.
Less than 3 out of 10 stocks in our universe are still in shape. This is a horrid number.
Even with Friday’s bump, 24 new highs, 690 new lows. Speaks for itself. The depths of some of the new lows like a Whirlpool (WHR) just amazing.
Both the FINANCIALS and the SEMIS now trade way below longer term averages and must make note that PNC BANK imploded on earnings while JP Morgan finished down on  Friday. These two areas are the most important to our work. Right behind are the TRANSPORTS which also melted down.
Sectors in good shape can be counted on one hand.
Sentiment has been frothy. 80% of recent IPOs lose money. Marijuana stocks with hardly any sales trade with $15 billion market caps. Margin is at all time highs. Remember, margin is the best friend of a bull market the worst enemy when markets turn down as margin comes off first before the real selling begins.
Many are saying this drop reminds them of what happened early in the year. On the surface, we can agree but when looking beneath the surface, it is much much worse. Worse in the world markets. Worse in the FINANCIALS and SEMIS. Worse in the new highs/new lows. Worse in advance/declines. Worse in almost every way. Do we dare say it reminds more of —-?  Ok…we won’t say! Those “things” just do not happen often!