SLOW CRASH!

CLASSIC TOPPING PROCESS LEADS TO CLASSIC MARKET TOP… LEADS TO SLOW CRASH!

By Gary Kaltbaum
President, Kaltbaum Capital Management
Fox News Business Contributor

Unfortunately, the process has led to the market top of consequence that we thought was occurring. Now we are seeing the market ‘event” that we were worried about. We do not like using the other word.

Keep in mind, the past two meltdowns were caused by excessively easy monetary policy…which caused massive “over-leverage” of the one-sided trade. The Fed has again been successful at setting those conditions as you are seeing the “over-leverage” just start to come off.

At this juncture, somewhere in here has to be some sort of relief rally but notice under these conditions, the rallies only last a few hours. We keep our fingers crossed now that a panic of some sort does not occur but cannot rule it out as the conditions for such are out there. In any case, the market is in definitive bearish form that should not be toyed with.

We are no Milton Friedman but we have to believe the market is forecasting a global slowdown if not outright recession. The printing of money did nothing but interfere with free markets and an economy that should be left alone. The grand experiment employed by the few who have no faith in the US economy, an economy that has thrived for so long, has once again distorted price and yield which gave rise to too much leverage for the third time in 15 years. When will they learn their lesson? And we are only a few percent off the highs.

Add in a feckless administration…and you fill in this blank.

We expect the Fed to intervene in some fashion if things worsen. Yippee!

THERE’S ALWAYS MORE QE!

A big up day ends not so big…though strong TRANS,SEMIS and SMALLCAPS for a change. We do suspect there is a bounce of consequence out there as the recent drop usually gets worked off with some upside. But there was something else we saw that caught our eye. A fedhead named Williams, by no accident, came out and stated if economies headed south, more QE needed to be looked at. We do not believe anything is said by these people without a reason. Thus…our expectation of more QE may have just been telegraphed.

WHETHER OR NOT IT DOES THE JOB LIKE IT HAS DONE FOR MARKETS FOR YEARS…IS ANOTHER STORY. BUT WE TAKE NOTHING OFF THE TABLE AS THESE PEOPLE DON’T KNOW THE MEANING OF MODERATION WHEN IT COMES TO ASSET BUBBLING EASY MONEY!

IT IS NOT GOOD NEWS WHEN…

The TRANSPORTS open up 175 points on the back of a proposed buyout in the RAILS…and finish down 175 points. This is indicative of major institutional distribution.

The maarket teases the upside and downside throughout the day…only to melt down again into the close. This is indicative of major institutional distribution.

Just about every pundit on the tube is saying no biggie, everything is ok, it is just a correction, market is cheap…and blah blah blah.

The only good news is that the market is beyond oversold…in which areas like ENERGY are beyond stretched to the downside beyond all norms. This can lead to a good counter-trend rally, even a vicious rally. But the fact the market and certain areas can get so oversold and stretched to the downside is again indicative of major institutional distribution.

And now…earnings about to come out in droves. Expecting random, wicked and vicious action to both the upside and downside.

HOW ABOUT A GOOD STORY OF THE DAY?

SOURCE: http://www.dailymail.co.uk/news/article-2790317/she-said-yes-moment-airman-recently-returned-middle-east-interrupts-nfl-match-propose-cheerleader-girlfriend-routine.html

CLASSIC TOPPING PROCESS TURNING INTO CLASSIC MARKET TOP

CLASSIC TOPPING PROCESS TURNING INTO CLASSIC MARKET TOP

While so many are already saying that what we are seeing is just one of those normal corrections and that the recent drop came out of nowhere, you know that from what we have been telling you for months and more strongly in the past few weeks, that we very much disagree. Simply put, we have been telling you the market was in a classic topping process and now it looks to now be turning into a classic market top.

As we have told you, tops do not happen in a flash. They happen over time as the “termites” chip away. Tops are a process of a narrowing down of the market as money flows from the average stock and parks in the biggest names that have so much influence on the popular indices. While the popular indices hold up, termites continue to eat away at the market. This has been seen in the horrid action of the small caps and mid caps versus the big names that are in the Dow, S&P and the NDX. In fact, when the Dow and S&P were just a day off recent highs, there were 50 new highs and 250 new lows. When the Dow and S&P were at new highs, only about 40% of all stocks were in good technical position. This is the market screaming that underneath the surface, trouble lies ahead. And now, to make matters worse, after this past nauseating week, only about 25% of stocks are in good technical shape…and that’s being nice. Of those, it is mostly defensive names in areas like Utilities, food, drugs, beverages and household products. Adding a little more fuel to the fire, all major indices are either down to or have broken the long term 200 day moving average…with the small, mid and NYSE all way below that important area of support. But we are not done. Foreign markets are being crushed. This goes hand in hand with market tops of importance.

And of course, this past week’s action speaks for itself. All asset classes were whacked with the Sox down 9% and the Transports at a 7% drop. Frankly, there is not much we can find to like about this market except the very oversold condition which will eventually lead to a good bounce. But before we get to the short term, here is the rest of the evidence that showed up in recent months:

MASSIVE AMOUNTS OF MARGIN. Margin is your best friend in bull markets but worst enemy in bearish phases. Margin went to all-time highs in the past month.

A TON OF SECONDARIES AND IPOS. Not only does this add supply to the market but more importantly, just another characteristic that shows up in the late stages of bull phases. One can also add in how far the bar has dropped on the IPOS as most IPOS in recent months lose money and a few had no sales. We repeat: NO SALES. The fabulous investment banks foisted upon a greedy and unwary public a bunch of no sales Biotechs. 1999 anyone? Lastly on this front, Alibaba with a measly $230 billion market cap with only $8 billion in sales. Are you kidding?

EXCESSIVE FROTH AND SPECULATION. When you see biotechs with no sales have multi-billion dollar market caps…that’s froth. When you see 10 cent stocks go to $3…that’s froth. When you see a biotech with no sales announce a good trial and triples overnight…that’s froth.

BULLISH READINGS AT MULTI-YEAR HIGHS AND LOW BEARISH READINGS NOT SEEN SINCE 1987. We’ll let this one speak for itself.

MERGERS,BUYOUTS AND MORE MERGERS AND BUYOUTS. To be blunt, mergers and buyouts do not happen at lows. We also need to add in the insane valuations of private equity deals, some with $10 billion market caps with no sales. Again, 1999!

This leads us to the here and now. We have several thoughts on several fronts.

We would love to give thoughts on the short term but it is the least important and too random. Just look at last week’s wild action. Whether or not the market bounces from here or after further downside, we would rather you pay more attention to the big picture…and that markets across the globe are in trouble.

OUR BIGGEST WORRY REMAINS THE ONE-SIDED TRADE COMBINED WITH ALL THE MARGIN. This could lead to a market “event!” We do not predict such things but recognize the conditions being out there. This leads us to our final thoughts on the Fed. If the market does crack wide open, WE EXPECT THE FED TO ANNOUNCE QE4. Yes…Janet Yellen will turn right around and rifle up the printing presses as Bernanke’s and Yellen’s main goal is to keep asset prices moving higher. While we think that would cause a strong short-covering rally, we doubt it will change the top that is being put in place, but granted, you never know as the amount printed has been unfathomable.

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NOW THAT WAS RANDOM ACTION…MAYBE!

Markets reversed on heavy volume yesterday off of nauseating lows as THE FED CHANGED THEIR STANCE AGAIN. This column has noted for years that the Fed is doing everything in their power to stop markets from going against their wishes. So…in an about face, instead of a time table for raising rates…it is now WE WILL LET YOU KNOW. One fedhead, in a timely fashion, stated we should not raise rates for a long while. And away we go.

But let’s be smart here. After scanning the market, for us, not much has changed. What has changed is probably gold is done on the downside for now as the recognition of easy money forever comes back to the forefront. Remember, we have told you the fed would never raise rates unless the market made them raise rates.

After that, we just had a big oversold rally in areas that have been trashed recently…with the best areas holding support. The strongest groups remain BIOTECH, RAILS and BIG FINANCIALS with all holding their 50 day average yesterday. One other note…notice how the SOX held the 600 mark again..the place of the breakout and the recent hold. Also notice how strong a move the SOX had yesterday off that support.

The one thing that gives us pause this morning is how Europe is having a non-reaction to yesterday’s big move…especially the German Dax which we give a lot of weight to. As of this second, the Dax reversed a decent move up but there are still a few hours left. We will continue to watch this closely.

We would suggest that some backing and filling is due as we enter earning’s season…and as usual will pay attention to the reactions for clues.

IT’S THE MONEY PRINTING STUPID!

Europe, the dollar, Isis, Ebola, George Bush, Geno Smith…there are tons of reasons pundits are spewing on why the market is getting in trouble. But so far, I haven’t seen one mention the money printing. Not one mentions the direct correlation between THE MONEY PRINTING AND THE STOCK MARKET. Tonight, we will recap all the characteristics that have showed up over the past few months that we told you always show up in advance of an important market top…which indeed has led to the recent nausea…but ladies and gentlemen…the last two times the Fed stopped printing money, the markets experienced a 17 and 20% correction respectively. Why should it be different this time? In fact, it was almost to the day that the market bottomed the last go round when Mr. Bubble unleashed his maniacal, market interfering, bubble creating $85 billion/month in printed money. This is on top of the manical 0% interest rate policy.

The thought process is simple. Absent Janet Yellen waking up, pulling off her mask to show that she is really Ben Bernanke…and decides to start printing again, we suspect there is more time and price as we move forward. Shorter-term action will be random but the big picture continues to worsen. Earning’s season is now straight ahead where a lot of jello will be moving on the plate.

More tonight here and on radio 6:06 pm at garyk.com if not in your city.

THE BEAT GOES ON!

The DOW down 17 points. The RUSSELL 2000 down the equivalent of 160 DOW points. Really not much more to say. If nothing changes, it is only a matter of time before the more popular indices follow suit. I continue to use the 3 words…”if nothing changes!” Normally, these words would not be used. But in a QE market, if Yellen wakes up one morning and decides to increase the money printing again, all bets are off on further downside. Yes, we remain in a market where we all have to worry about one person’s decisions on printing trillions of buckos.

Since we have been asked, we don’t have a time or time frame when something may or may not happen. But we are aware of elections and election shenanigans as well as end of year seasonality. But this won’t sway us if things continue to deteriorate. If things worsen, market will not wait for seasonality or elections.

 

Lastly, earning’s season is straight ahead. As usual, expect the jello to fly all over the plate.

NOT MUCH HAS CHANGED

Excellent hold at vital support on Thursday leading to the fake job’s number on Friday…which led to a strong move. The Russell held the 1080 for the 4th time in a year while the S&P held the 150 day average again. I was asked why is the 150 day average so important now. Simple…it is where this major average has held many times over a good period of time.

That all said, not much has changed. There is still a plethora of bad sectors and stocks, a lack of new highs while new lows have picked up markedly and a narrowing leadership. Even the SEMIS look in trouble here. So heading into earning’s season, there remains a few strong areas…including BIOTECH, BIG FINANCIALS, RAILS, INVESTMENT BROKERAGE, SOFT DRINKS…yes KO and PEP, RETAIL-HOME IMPROVEMENT…yes LOW and HD and not much else. We will know a lot more by the strength of any bounce…but beware! Just take a glance at the Russell 2000 and Midcap 400. They continue to act poorly.

Was traveling this weekend. Will have more meat tonight. Keep in mind, with earnings starting to rev up, expect a lot of jello moving on the plate.