After 4,268 DOW points to the downside, the market finally got its counter trend rally. Too many are excited because of how big the day was. We hate to throw cold water but:
“BEAR MARKET RALLIES ARE SHARP, QUICK, MAKE YOU FEEL GOOD, SUCK YOU IN AND BURY YOU SOON AFTER!” We coined this phrase. We already had a 2,100 point rally and a 1,700 point rally during this bearish phase. Both failed miserably. Bear market rallies serve to relieve massive oversold conditions. As we told you, we were very stretched combined with a large dose of bearishness…thus the rally. Let us also not forget that we are in not only end of month but end of quarter and end of year window dressing. Of course, window dressing is illegal so it doesn’t happen.
But forget all that. What worries us most this morning? Europe has had no reaction to our 1,000 point move. In fact, just the opposite as the DAX, CAC and LONDON FTSE are in new yearly lows this morning with decent sized losses.
Futures are down decently this morning…about 300 DOW points as we write this. We are not paying much attention to that. With price still so stretched and extended to the downside, we suspect we are going to continue to get some wild action both up and down. Gaps and reversals, reversals and gaps will be the norm for now. Eventually, it will settle down.
To those who celebrate, Merry Christmas.
We believe there has been a complete loss of confidence in the president, the secretary of the treasury and the head of the central bank when it comes to markets. We do not think it a big deal that the central bank raised rates to a measly 2.25%. We think it a problem when he, in fact, all three have stated everything is fine, the fundamentals are great and all that crap. It absolutely reminds us of Paulson and Bernanke who kept saying subprime lending was no problem, housing will not go down and the economy was sound…as banks were tanking and the market was trashed back in that lovely 07-08 period. We believe it was just fine for Mnuchin to contact the big banks. We think it a colossal blunder to advertise it as it got the opposite effect expected.We also believe it a mistake for the president to treat the head of the central bank as his personal pinata but frankly, we are not surprised by anything that comes from this man’s mouth or his tweets. We believe a good part of the recent drop was just this tweet. We continue to believe as we have since day 1 that tariffs suck and that Mr. Tariff must change that stance and policy. The fact is and we repeat…”THE MARKET IS YELLING AND SCREAMING WITH A BULL HORN THAT SOMETHING IS UP!”
The next move by the fed will not be raising rates…it will be lowering rates. MARK THAT DOWN. We are quite sure everything you are seeing in the markets is a telegraphing of “something is up” down the road…or maybe sooner.
Some of our quotes from some of our past missives:
“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.”
“If all these major indices break the lows, you will be hearing “bear market” for the major indices.”
“If the lows that have held three times since late October get taken out, we worry about a”waterfall-type” drop as the big institutions will know market is giving it up for another leg down.”
Well, we got a “waterfall” but we must tell you, 2,400 Dow points in 6 days was not in our mind. This just tells you how much pent up selling there was. This just tells you how much leverage remains in the system.
We have spent countless hours studying bull and bear markets. We are able to pre-date our scans to the first day markets every traded. We must tell you that we believe there is only one other time the market became this bent out of shape on a near-term basis (oversold beyond belief) and that is 1987. We count in the mid-single digits the percentage of stocks above the 50 day moving average. We have the Dow an amazing 3,236 points BELOW the longer-term 200 day moving average or 12.9% below. To show you just how bad the 87 crash was, on crash day, price was 26.7% below the 200 day moving average. Eventually, this gap will get closed. We do not know when eventually is. By the way, major indices are down between 15-18% this month. This is not a typo.
We have again been out front and center on what could be a major top in the market. As always, we just do not know how long it lasts or how far it goes. Just like in 07-8, we will be putting out our “ANATOMY OF A TOP” report in the next week going over everything we saw and reported to you this year from the foreign markets topping out early in the year along with about 50% of our market leading to our “uh oh” moment the first week in October when we saw the “good half” of the market top out.
Lastly, “bear market rallies are sharp, quick, make you feel good, suck you in and screw you soon after!” We repeat one of our main bear market rules because based on our sentiment indicators continuing to be at beyond extremes combined with price at beyond extremes to the downside, we expect a good counter-trend move soon. What day? Don’t know. What week? Don’t know but gotta believe we are getting close just to relieve this condition. Often, it occurs on one of the big reversal days. We will be watching for one. Just realize that in no way would it change the big picture.