REVERSALS/COMPUTERS AND THE PRE MARKET

-On Wednesday, after 4,268 points to the downside, aunt Mary and uncle Bob left their house in their Toyota Supra and drove over to their EF Hutton office and told them to buy 100 shares of Digital Equipment. Around the United States, thousands and thousands of people got into their cars and did the same. All felt the market had gone down far enough and felt there was value.  They went to E.F. Hutton, Dean Witter, Lehman Brothers and many other firms, all buying their favorite company’s stock. Out of nowhere, a major rally ensued. The market experienced its first 1,000 point day ever . Yesterday, with the Dow down 600 points, that same aunt Mary and uncle Bob, drove to see their broker and bought 100 shares of of their other favorite stock, Eastman Kodak. Thousands of others did the same. Out of nowhere, the market experienced an amazing 900 point rally in 90 minutes.-
-We hope you know that was sarcasm. We have watched the past couple months as many people have been blaming the modern technology of computers, programs and algorithms for Wall Street’s drop and volatility. We have news for you. Yesterday’s 900 point rally has been reported to be one of the top five biggest computer program trades in history. We have news for you. Wednesday’s rally was also computer driven programs. We have news for you. The Dow going from a low of 6,469 to a high of 26,951 in nine years with no real bear market was with programs, was with computers and was with algorithms. We did not see anyone complain about them during this amazing run to the upside…yet possibly the first real bear market in almost 10 years and we hear nothing but whining. Very simply, if you’re going to blame the downside, give some credit for the upside. Technology is here to stay. It ain’t going nowhere. Just saying.-
-On Wednesday morning, we  told you we were very close to a bear market rally. We did not know when but knew we were getting closer. This thought was based on two simple things. First, the DOW had dropped an amazing 4268 points in just 14 days.  Second, bearish sentiment had gone off the charts. We also had the idea that there were just a few days left not only in the month, not only in the quarter but in the year. Of course, window dressing is illegal so it does not happen. 1,000 points came out of nowhere. This led to  yesterday morning when we told you not to worry about the market being down 300 points pre-market because we were going to see a lot of gaps and the lots of reversal. Volatility always picks up when price is stretched away from the norm. Well….that was one hell of a reversal. We had no clue one would happen and we certainly had no clue 900 points in 90 minutes. But again, we do know what happens when things get so stretched.-
-We have already been asked a few hundred times in the past day whether we could possibly have seen the bear market low. We never take anything off the table especially with central banks at the ready and the president that watches every tick in the market. We are all for it being THE low. But, you have seen a 2100 point rally in 7 days. You have seen a 1700 point rally in 6 days. Both failed miserably. And…”bear market rallies are sharp, quick, make you feel good, suck you in and bury you soon after.” Maybe this time it is different. So far, to our bleary eyes,  this is nothing more than a gargantuan oversold rally in a bear market that by no coincidence happens at the end of month, end of quarter, end of year window dressing period. Again, 4,268 points in only 14 days will get you some serious sized bounces. We suspect there is even more upside to fill some more of that 4,268 points. We will know a lot more on how they pull back this move off the lows. Typically, markets experience an A-B-C rally. A to the upside. B on the pullback. C one more upside higher than the A…and then resumption of the major trend. We do believe Wednesday’s lows will hold for a while though. It had better.-
7 replies
  1. Avatar
    Paul Rogers says:

    I used to work in the business Gary and of all the morons who pretend to know the future and free prognosticate their opines with no consequences in either direction ( I won’t mention any names like Cramer) you seem to have the best day to day analysis of what’s really happening .. KUDOS for keeping in real and honest and in their faces.

  2. Avatar
    Tony Ferrara says:

    Gary’s the only voice I trust after years of listening to Gary and Charles DeRose before I discovered Gary.

    Thank you for being a straight shooter during these crazy times.

    -Tony

  3. Avatar
    Shawn Mendel says:

    And Gold seems to be hinting of a Black Swan event, and it is troubling that the dollar has not rallied with the fed rate increase, not good, and further unexplained is the uncorrelated bond and stock market, Dow up a thousand plus, and little relative movement of the 10 and 30 year, not good for bulls…
    As for me, I will trust Mr
    Market to clean up all these idiototic issues (fed money printing, zombie companies, etc) by collapsing into a depression in order to teach sound money and business, as well as rational social, not socialism, policy.

  4. Avatar
    Paul says:

    Hey Gary .. please, I implore you, to read and discuss the article linked below.. Pension funds / Mutual Funds reaching for yield in complicated “levered loan contracts” (Disguised as Bonds) have manifested themselves into a liquidity crisis as they get puked up as fund redemptions take center stage.in favor of Short Duration Treasuries yielding 2 plus % opposed to owning the average stock in the S&P 500 which is down 42% (according to Goldman Sachs) from their 52 week highs. The Bond Market/Levered Loans are having, and will continue to have, a catastrophic effect on stock prices as more stocks are thrown out with the bath water to meet redemptions. The redemption party is just getting started as Levered Loans like Collateralized Mortgages in 2008 blowup in stunning fashion.. No Liquidity in the Credit Markets. Mnuchin didn’t ask Jamie Dimon the right questions in my opinion. Average Mom and Pop investor have no clue how and what is really behind this melt down in stocks. Algos are simply following price as Fund Managers hit the panic sell button for redemptions. These guys never have enough cash on hand for redemption emergencies like we are once again witnessing. Wall Street Greed in packaged illiquid products once again raises its ugly head.

    https://wolfstreet.com/2018/12/28/loan-mutual-funds-have-record-bad-year-end/

  5. Avatar
    Victor says:

    Gary, thank you for the lessons you teach us. I try not to follow my impulses and believe that instead of getting in my Nissan like uncle Bob it’s best to buy steady over long periods of time throughout ups and downs. I’m mostly in bonds which is I believe a safe heven in this types of markets. I listen to your show and follow your comments and you have saved me from making many mistakes. Some times I have tried to guess the moves but before jumping in I listen to your thoughts and re-adjust.
    Thank you again and a blessed New Year for you, your Family and coworkers in your show. PS saw you on FOX, looking good Gary.

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