THE BEAR MARKET CONTINUES

“THE BEAR MARKET CONTINUES”

September 28,2015

By Gary Kaltbaum
@GaryKaltbaum
garyk.com
Fox News Business Contributor

We would like to tell you there was any good news in anything we are seeing in the market but sorry…no can do. In fact, we think things are just worsening. To get the shorter-term out of the way, after another nauseating drop, Thursday saw a nice reversal but Friday ended up less than stellar as the biotechs were again slammed, hurting the Nasdaq and Nasdaq 100 while the Dow finished up.

The big picture remains the same for us:

We remain in a worldwide bear market for stocks…notwithstanding the occasional bounces to the upside which only serves to relieve the drops. Bear markets that are global in scope are usually the worst kind.

We continue to see only about 1-2 out of 10 stocks in good shape. This is not the kind of number that lends to a market that is just in a correction like so many are saying. (and hoping for) Remember, for weeks and weeks, we told you the market was getting narrower and narrower as the indices were still holding up. It was just a matter of time before things caved in.

On top of that, we cannot even find on one hand the amount of sectors in good technical shape while there are probably 190 in bad shape.

Furthermore, all major indices trade below short,intermediate and long term moving averages. Speaking of the short term moving average (50 day moving average), it now trades below the longer term moving average (200 day) which is a major characteristic of a bear market. The rally that ended on Fed day…ended right at the declining 50 day average…another classic characteristic of a bear market.

So as you can see, we disagree with all those that say this is just a correction in a bull market. The average stock is much worse than the indices but suspect there will be more time and price for the indices to come. And if the major indices break below the August 24 scam lows, we suspect a lot more selling will show up as we will get into what we call the start of the “give up” phase. This is the phase where the world recognizes that this is for real, leading to more selling. You will then really start to hear the words “bear market” as major indices will then head into the 20% level which for most, defines bear markets. Do not forget, there is still a huge amount of margin and leverage in the system. They are your best friend in a bull but your worst enemy in a bear as margin selling exacerbates the drop.

But there is more to tell.

Though they bounced Friday, financials continue to act horrid. This goes hand in hand with bearish markets. On top of that, the semiconductors remain in terrible shape. These two groups, by themselves, have been the great forecasters of the market for years.

This leads us to the biotechs. The biotechs have been the strongest group of the bull market. We have told you that if they go, get the fork. The biotechs are now crashing…adding to the nausea. We also believe the rest of the whole healthcare complex has made a major top…which just adds to the misery. (We are sending you another report this weekend just on the biotechs as we saw this coming!)

Before the recent drop in the indices and on the last rally, we wrote to you that a select group of what we called “nifty fifty” type names continued to get huge money flows as fund managers had to find a place to park their money. We are talking about names like Amazon, Google, Facebook, Priceline,Expedia and a few others. These names have done a good job of holding up the Nasdaq and Nasdaq 100 better than the other major indices. After last week’s action, we now believe they are about ready to have their day in the nausea court. We think you will be hearing about this soon. Google and Priceline have already broken the 50 day average. The others look ready. And we couldn’t stop there as we have to mention Apple who is going to sell a lot of phones in the next few weeks. We are so far noticing Apple having trouble as it rallies into the 50 day. If it gets hit along with the others, say so long to the Nasdaq and Nasdaq 100. It is important to know that in bear markets, they get them all.

Lastly, we must mention the Fed. We are both perplexed and amused how anyone can believe what the Fed is saying and doing right now. All evidence at hand says the Fed wanted to stay at 0% (9-1 vote) but when the markets did not cooperate, they changed their stance quickly to the point they are all but promising a rate hike soon. (just like a politician) The problem with all this is we are now to the point that the market could care less what they say or do and suspect if markets did not like staying at 0%, they will hate any rate hike…even to 1/4%. In other words, they have really boxed themselves into a corner in which there is no way out.  Keep in mind, the Fed is used to the market acting like a trained dog. Any time they said anything easy or made any dovish move, markets reacted positively for a very long time. They are not used to the market sticking the middle finger at them. Looks like they had better get used to it. We really hope they stay quiet as too much talk may cause more severe dislocations in the market.

2 replies
  1. Avatar
    john himmelrich says:

    Gary-

    [longtime listener] – now that we are “officially” in a bear phase, would you suggest a retiree strategy to move to the best dividend paying utilities ? It seems that companies will have to incent stock purchases with higher dividends and more buy-backs.

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