THE OPEN

After over 2,500 Dow points in 9 days, markets are bouncing this morning. This is being helped by announced buybacks…BOEING (BA) announced a humongous additional buyback.

The Fed is tomorrow. We expect the Fed to either raise 1 more time and talk very easy or not raise rates and surprise the masses, claiming their dependent data has worsened. There will be no more talk of further hikes and expect them to also say they have weapons if need be. Yes…actually lowering rates. During the past 10 years of easy money, all pivots to easier money have helped markets and to be clear, the Fed is watching markets.

The oversold bounce looks to be at hand. How long and how far? Not a clue. The tape is a mess though and the only thing markets have going for them is they atre stretched and extended to the downside with a big dose of bearishness now in play.

NEAR TERM POSITIVES?

-BY GARY KALTBAUM DECEMBER 17, 2018-
-Just wanted to send one last note to you…and it could be a near term positive.-
-Just starting to believe that after dropping another 2,100 Dow points in just over 8 days combined with a massive dose of bearishness (Did you see the NY TIMES STYLE section calling for a crash?)…combined with the expectation of an easier Fed…enough may be enough. Keep in mind, any bounce/rally into the holidays will not change the big picture. Keep in mind, any/bounce rally would be emanating from weakness, not strength. Repeat…any bounce/rally (which is not a sure thing) would not change the big picture. Bounces do happen in bearish trends.-
-More to come. Just don’t blink!-

ECONOMIC STATS

-We have told anyone who would listen that the market was telegraphing slowdowns around the globe. We have told anyone who would listen that the U.S. would not be immune and that the crumbling of every economically sensitive area of the market meant something. Have you seen the chart of the TRANSPORTS lately?-

-This morning:-
-December’s New York Empire State manufacturing index fell 12.4 points to 10.9. Consensus was 21. This was the weakest level this year with weakness across the board. The all-important new orders actually fell 5.9 points to 14.5 while shipments fell 7 points to 21.-
-Yes…we know. This is just one number. Other recent stats have still shown strength. Just remember that we told you that going forward the norm will be revisions to the downside on most economic stats. You may be seeing it in real time now.-
-We are sure the Fed will be “this one and done” after they raise rates this week. We cannot believe the president is still jawboning them this morning to not raise rates. He is actually forcing them to raise rates to keep any shred of credibility. Maybe if he stayed out of the fray, they would not have. Is it possible they cave and not raise rates? Sure. They are after all an easy money institution. Will it help the market? After another 1,900 DOW points down in 8 days, it had better…especially as we head into the holidays.-

THE MOST IMPORTANT RULES OF A BEAR MARKET!

BY GARY KALTBAUM-DECEMBER 17, 2018

SAVE THIS FOR YOUR ARCHIVES!

We have not had to send out this updated email in a very long time. It may be time. Actually, it is time. Based on our rusty abacus, with still no major index hitting the 20% bear market threshold, approximately 70% of the stocks in our universe have. Many sectors and many countries have. After all, the RUSSELL 2000 is down over 19% from its highs. But don’t worry, it only includes 2,000 stocks. Currently, on top of the RUSSELL, the TRANSPORTS down 18%, the SOX down 19.6%, FINANCIALS (XLF) down 20.1%, the REGIONAL BANKS (KRE) down 26.5%, the NASDAQ down 15%, the NDX down 14.3%, but the S&P only down 11.6% and the DOW down a measly 10.5%. Over 1,200 stocks have hit new yearly lows with another 500-1,000 names very close.

First…we are not Cassandras. We are not perma-bears. Before October, we were bullish on half the market. We were bullish on growth and other areas in up-trends. Before October, we were bearish on areas like foreign markets, energy, commodities, housing and many other areas. It was not until the good 50% topped in early October did we say uh oh! Perma-bears are people who have been calling for crashes and depressions since our Bar Mitzvah. Of course, when the broken clock finally hits, they take credit for being right.

We are interpreters of the market, price first, then volume and then sentiment. We have done exhaustive studies going back 100+ years of market action. This involved many hours of study of both bull and bear markets. How do they top? How do they bottom? How do bull market rallies pull back? How do bear market rallies bounce? How do the masses react? From these studies, we have found characteristics that have shown up time and time again leading to our own set of rules based on these characteristics. You are now seeing all these rules played out in real time. It is these rules that have again, enabled us to stay in front and sidestep what is already some serious brutal action. In fact, this bearish action is playing out in almost classic fashion.

In no particular order:

In bull markets, surprises happen to the upside. In bear markets, surprises happen to the downside. Just this past week, JNJ loses $40 billion of market cap on some serious news but do you think it would have lost that much in a bull market?

In bull markets, stocks gap to the upside on great news. In bear markets, stocks are constantly blowing up on perceived good news. The latest being ADOBE and ULTA SALON. Blow ups simply don’t happen often in bull markets.

In bull markets, good news is great news and bad news is even good news. In bear markets, good news is bad news and bad news is horrid news.

In bull markets, overbought becomes more overbought. In bear markets, oversold becomes more oversold.

In bear markets, rallies are sharp, quick, make you feel good, get everyone bullish, suck you in…and then screw you soon after. (We coined those words!) We just had two very sharp and quick rallies up into resistance before failing miserably. (DOW 2100 points in 7 days and then DOW 1700 points in 6 days.)

In bull markets, margin expands as greed takes over. In bear markets, margin contracts as fear takes over.. Remember, margin (leverage) is a bull market’s best friend but biggest enemy in bear markets as leverage must come off first before the real selling starts. Margin debt is now contracting markedly down to a 1 year low.

In bear markets, the biggest losers will be the names that had the strongest runs during the bull market. Market players will not believe how low some of the most popular names drop. This occurs because their popularity makes them over-valued, over-loved and over-leveraged at the most inopportune time.

In bear markets, the average stock will lead the indices down. You are seeing it in plain sight right now…and is happening again over the past few days.

In bear markets, defensive areas will hold up best, at least for a while (Utilities, REITs, Consumer Staples and the like) Guess what is doing best now? This is because the big money is selling risk and has to park the money somewhere. They always choose the biggest, most liquid, boring low beta names. The only new yearly highs have come from these areas recently. On that note, in bear markets, the DOW holds up best because it is laden with the biggest,most liquid, boring low beta names. Notice how PFIZER, PROCTOR & GAMBLE, MERCK, and until Friday, JNJ have been or are at new yearly highs. Also, notice how even big technology names like CISCO and MICROSOFT have held up well. It is sell the higher beta tech to park the money in the bigger, lower beta tech.

Near the end of bull markets, quality heads south on IPOs. We read a study that in the past year, more than 75% of IPOs in the past year lost money. You do remember all those fabulous IPOs that came out in 99? We do!

In bear markets, the curtains come down on bubbles, on manias, on no sales BIOTECHS, on money losing companies and on ridiculously priced IPOs (SNAP) as bull markets are friendly to excessive speculation. Bear markets will crush excessive speculation. You are seeing it in real time in the coins as the average coin is down in the 90s with some going bye bye and now seeing it in the weed stocks….even though the defenders continue to swear by both. Bear markets make valuations matter.

In bear markets you will be hearing these words more often than CNN covers Trump…CHEAP, VALUE, UNDERVALUED, OVERDONE, IT’S THE ALGOS, ITS THE PROGRAMS, ITS THE COMPUTERS, FUNDAMENTALS ARE STILL STRONG, ECONOMY IS STILL STRONG and our two favorites: “THE MARKET IS WRONG.” We have news for those people who think the market is wrong. THE MARKET IS REALITY. And lastly, you will be hearing the word “CAPITULATION” more often than you will hear the name Kardashian! The problem with capitulation talk is simple. In bull markets, capitulation serves to halt pullbacks leading to more glorious legs up in the bull market. BUT…in bear markets, capitulation only serves to stanch the bleeding for a short time before sellers show up and blast the market again.

In bear market bottoms, the good news on why does not come out until months later. More timely, in bull market tops, the bad news on why also does not come out until months later. We hope you realize foreign markets topped out many months ago. We are now hearing of Germany and Japan contracting. We are now hearing worse numbers out of China. We started talking potential slowdowns here months ago. Our exact words were sales are now strong, earnings are now strong, the economy is now strong but markets look forwards, not backwards and we are worried about all the economically sensitive areas being crushed. Guess what everyone is talking about now? This morning’s front cover of the WSJ headline: “GLOBAL SLOWDOWN SPARKS WORRIES ABOUT U.S. STRENGTH.” Again, markets knew these headlines in advance. To make this case further, at the lows in 08-09, famous pundits were telling you to stay out of markets for another 5 years, “the financial system was collapsing,” people were taking cash out of banks…and on and on.

Towards the end of bull markets, no one believes a bear market is possible, especially after not having a real bear market since 09 because of the moronic, imbecilic dolts at the central banks around the globe who refused to let real price be discovered. (Do you think we like central banks?) As the bear winds its way, more and more pundits convert and more and more people come to the recognition. Price does move the brain matter. Of course, this will not be called a bear market right now because frankly, the 2 most popular indices are only in what they call “correction” territory but the average stock knows better. If this is not a bear market, we hate to see what a bear market looks like.

We do not have every answer. We just watch price as price is everything Opinion means nothing. We promise the market will do whatever it wants to do regardless of opinion. Hope and prayer will not matter. We have tried. It does not work. We have spent countless hours studying the greats like Oneill, Weinstein, Darvas and others which helped us come up with these rules. We never know how long bull markets or bear markets last but we believe we know what characteristics show up during both. We believe there is a good road map and have proved it again. As we have always told you, we just want to get the big picture correct.

ANOTHER BUBBLE BURSTS

Those that listen to the radio show, watch us on tv and read our psychotic missives know we were all over the “coin” mania/bubble/scam. All the way back last December, in the midst of the climactic move, we wrote to you and told you that this was all bull crap. We told you there was no economic value to any of the coins. We thank the great Stuart Varney to allow us to tell his ample audience about this while the con artists were all telling you $50,000, $100,000 and one con man telling you a $1 million price target for Bitcoin. We told everyone that eventually all the coins would be “dust!” We cannot start to tell you the type of phone calls and email we received. (We were not wished well!) Fast forward, the average coin is down in the 90s with many already gone. By the way, you cannot sell in size any that are down in the 90s. Bitcoin is down in the 80s and going through the “slow death!”

Well…we also told everyone that the weed stocks were also a mania/bubble with a lot of it being a scam. The difference will be there will be a business. The problem is that many of it was bull crap. We used Tilray (TLRY) as the poster child. It experienced a climactic run just like the coins. Go compare the “Eiffel Tower” charts of each. The simple problem was at the highs of Tilray, it had an almost $30 billion market cap with only $25 million of sales, continued losses and a CEO that stated they needed to raise money. Tilray is now down 75% from the highs. Many of the “crappy” companies are down even more. We are still getting calls at the office to invest in weed start ups. Here is the problem. Tilray still has a $7 billion market cap. Would you buy a company for $7 billion that has only now $30 million of sales, loses money and needs to raise money? We expect this to drop to all the way down from where it came from as bearish markets pull down the curtains on bubbles/manias.  Remember this. A lot of money has been lost.

IS IT JANUARY ALREADY?

Even though the DOW was up 70 yesterday,

Advance/declines were horrid.

New yearly lows picked up markedly with another 1,000+ names just above new yearly lows.

TRANSPORTS, SMALL CAPS, MID CAPS, RETAIL, REGIONAL BANKS, THE BIG BANKS and a slew of OTHER AREAS finished at either closing lows or new yearly lows. We cannot begin to tell you how negative this is. Just remember, our “top of the market” call in early October was based on two things: 1) Underneath the surface, many countries, stocks and sectors were already in bearish phases. 2) Major indices always follow as the weight of the weakness takes everything down. We are very worried that the weight of the weakness will again lead down…and this time, major, major, major support is in the cross hairs.

We told you many weeks ago that markets were telegraphing slowdowns if not outright recession in many areas. We are getting it. Germany, the engine of Europe and Japan contract. Our GDP expectations have been coming down quickly. The numbers out of China continue to decelerate. Even China cannot lie about their numbers. All this going on with continued easy money and a Fed that has already pivoted away from their stance on raising rates. We are 99.9% sure that they must raise rates next week just for credibility sake but will now start talking risks becoming more elevated…thus THE LAST RATE HIKE.

Since all the recent gaps to the upside failed, maybe today’s gap to the downside AGAIN washes out sellers. But this time down, many stocks and many areas are leading the indices. AND ALL THIS IS HAPPENING IN DECEMBER. We were in hopes that the seasonal strength of December would at least hold things up. We thought that when the next leg down occurs, it would occur in January. We are not so sure any more. If or when the lows are taken out for the majors, you will be finally hearing what the average stock is already in, a bear market as the talk of the 20% magic number will come into play. It will be the small caps that hit it first.

If the lows are taken out, we worry that the big institutions will see it, know it and react to it. You know what happens next. But don’t worry, new records in budget deficits do not matter and now the charlatans in Washington who continue to screw and disrespect the tax payer, are wanting earmarks again.

PRE MARKET NOTES

Less wild day yesterday but DOW still dropped 300 points from the highs. Overnight, futures were strong…then flat and then Draghi from the ECB said something about weaker Europe and balance of risks are now to the downside= MORE EASY MONEY and then something about China buying soybeans. Not kidding.

DOW 24,000-24,200

S&P 2,620-2,640

NASDAQ 6,900-7,000

These support levels have held 3 times over the past 2 months. As long as they hold, market has a chance. That said, lots of ugly charts, lots of technical damage but we still hold.

Strength showing up in a slew of software names. Actually had a couple in new highs yesterday. BUT…if we turn down, they will get them also but right now, on out screens. DATA, TWLO, SEND, UBNT, WDAY come to mind. We advocate nothing right now. Mentioning for your review.