We have been asked several hundred times in recent weeks why we weren’t more bullish. Methinks we are starting to see the reason why. Here have been and are our thoughts.

While markets have drifted up in recent weeks, a few things stuck out like three sore thumbs that told us we needed to kick back before committing to the bullish side. They are things this report has talked about many times over the years.

First and most importantly, one must look underneath the hood instead of just looking at the indices. Underneath the hood, we had been telling you that leading the market were FOOD, DRUGS, BEVERAGES, TOBACCO, HO– USEHOLD PRODUCTS, UTILITIES, TELCOM UTILITIES, REITS and BOND FUNDS. Sorry….these are the most defensive of defensive issues telling you something is up. And usually, what is up is that the market is forecasting a severe slowdown in economic growth if not more. No…we are not in a depression as some are saying…but we are in an anemic economy where any more weakness can tip things over.

Secondly, there has been little or no leadership in growth stock land. It is a must to see leadership in this area as it has always led bull phases. Not only that, we have recently seen major blow-ups in previous leaders like Chipotle, Intuitive Surgical, Whole Foods and Monster Beverages.

Lastly…where was the volume on the way up? Volume has not been strong. Volume has not been compelling. Volume measures conviction of the big money crowd. If they don’t have conviction, strong up moves are usually not sustained.

So we walk into a trading top on Friday and then into today. If we were to take the real bearish case, we would tell you to overlay last summer to this summer. It just about looks the same. For the bulls, they had better hope it doesn’t turn into something like late July-early August of last year. We believe the market is in one of those nauseating trading ranges right now. If resistance gets taken out, we get more upside. Resistance was not taken out so we head back down. If support is taken out, then we will talk about a good leg down. Here are short term levels to watch. DOW 12,450…S&P 1325 and then 1309…NASDAQ 2837 and then 2818…NDX 2522 and then 2510. Longer term…DOW 12035…S&P 1266…NASDAQ 2726…NDX 2443.

Our favorite areas continue to be all those defensive areas…but on pullbacks into support/moving averages. Keep in mind, they do not have the strong earnings growth to keep them going infinitum. We would also add we continue to like the housing sector…yes, the housing sector continues to show tremendous relative strength versus everything else.

Lastly, we are constantly bombarded on whether the Fed will enact another QE. It is our position that the Fed has been printing money for years…will continue printing money and will never stop the insane printing of money until the day the market stops them or until sane people take over at the Fed. The only issue is the timing of an announcement of the QE in order to try and goose the markets. We gather you have an understanding as to how we feel about Bernanke and friends. Nothing personal!

Gary Kaltbaum owns Kaltbaum Capital Management, LLC (“KCM”), an investment adviser registered with the U.S. Securities and Exchange Commission. The opinions expressed herein are those of Mr. Kaltbaum and may not reflect those of KCM. The information offered in this publication is general information that does not take into account the individual circumstances, financial situation or individual needs of an investor. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.