Very little to add. More yuck in a bunch of areas with the Euro continuing to crumble.
Major indices that had broken above range have now tucked back into range like frightened turtles. Stocks that broke out of range are doing the same. Bear market areas simply worsen.
The potential good news is that every time markets have corrected between 5-10%, pixie dust showed up and away we go again. The jury remains out on this corrective work.
And that’s being nice. But first, for a very long time, every time markets have been hit hard, every time massive distribution showed up, every time the market looked like it was headed into a correction of magnitude….markets experienced a reversal day and then turned right back up.
We are in no way saying this will repeat. But we are saying it has been folly to get bearish after a 5-10% drop in the indices.
That all said, things simply worsened yesterday leaving the market with a bigger wound. More areas are breaking support. The one that stands out is the big financials.(XLF) This needs to be watched. Other areas that have put in topping formations are the transports, industrials, emerging markets and consumer staples.
We held off writing last night just to see how this morning goes and it is not pretty…a decent gap to the downside. We just thought yesterday suspicious as it seemed like a propped DOW day. The DOW was up nicely but advance/declines were flattish with other indices trailing badly.
As we stated coming into this week, we thought there may be some more work correcting the recent move. Volume and price patterns had changed somewhat…and with 40% of the market remaining bearish, it doesn’t take much when the market wants to sell off. We will be watching the 50 day moving average on all the indices and then underlying support. A break of any worsens things. The NASDAQ and the NDX remain the strongest but pay attention to Apple as it goes into the DOW next week. We watched the market almost led on a leash by the moves in this stock yesterday….caused by the latest product announcement.
The Euro continues to implode this morning as the money printing nutjobs get going in Europe. This has caused more commodity yonking this morning.
Do not forget. We have started a TAKE BACK AMERICA segment on the radio show. We have had enough of the “in plain sight” corruption, sleaze, payoffs and all that crap from politicians to families, friends and donors. We have had enough of the debt, the deficits, the flagrant misuse of taxpayer dollars and all that goes with it. We will cover this on a daily basis. You can follow me on twitter at twitter@GaryKaltbaum and we will be using the #takebackamerica.
First off…what has not changed:
We remain bearish on about 40% of the market…with most worsening in the past week.
Our latest stance change occurred on Feb 6 when we told you we thought the bond market had topped out. We also went on to say that the interest-rate sensitive areas like Utilities and Reits had topped based on the spike in rates. Things have only worsened as these areas continue to buckle. At the very least, we would continue to avoid these areas.
Our stance on all the other bearish areas has not changed as we remain bearish on:
Energy/oil & gas…except for the refiners. We have stayed bearish since July 2014 and have seen no reason to change that stance. All rallies have been contained.
Most commodity areas including steel, copper, aluminum, coal and all that stuff. On top of that, we also thought gold had topped again on Feb 6…and now gold is actually teasing the lows. This also includes silver.
The Euro…in other words, great time to fly to Europe as the ECB is determined to crash their currency. Sure…that will work well longer term.
Casino/gaming as many in the group being slaughtered because of Macau.
What has changed?
The rest of the market came under serious distribution late last week. We do not think this just stops on the downside. We suspect we are going to see some more downside testing. If this occurs, we will start giving you support areas but for now, the 50 day average will be of import. Keep in mind, the NYSE has already moved slightly below while the Transports moving nicely below. The NASDAQ and NDX remain the strength as a bunch of big cap tech has led but that can also change quickly…so stay tuned.
Please remember, we have not had a bear market in 6 years and hardly a correction in 2-3 years. This market is way overdue. That does not mean one has to occur…but good to have those stats in the file manager. The first thing that would need to happen is the 50 day moving average break. If this occurs, we will talk.
Lastly, there has recently been some hot debate on whether we are experiencing a bubble with Mark Cuban chiming in stating most definitely yes. We agree but we think he missed the real bubble. The real bubble is in the bond market. Remember, bubbles do not have to repeat in the same area. 99 had the tech/internet. 2005 had the housing. This time, we have no doubt it is in the 0% rates here, the negative rates there and the printing of $13-14 trillion of fake bucks. We have actually lost count. And yes, the printing continues. Do you really think it is a good thing the ECB is now printing to buy bonds that are yielding a negative rate?
It is this interest rate bubble that causes excessive speculation, excessive margin and leverage and activity such as 130 biotech IPOs with a cumulative market cap of $100 billion with NO SALES. We can go on but we will stop there for now. We do not know when this ends or how it ends…but be rest assured, it will end. And when it ends, like every other central bank-induced bubble from the past, it ends badly…and look no further than maniacal central banks both here and around the globe as the ground zero of stupidity as we have lost the two way trade in the bond market which has led to a war on savers leaving them to take risks with bonds and bond funds at ridiculous prices and ridiculously low yields. We do wish we could talk differently but there is just too much precedent from just the past 15 years to not be worried. We hope we will be wrong. We really do for we are optimists but it is tough to be optimistic when markets are no longer free.
We will have a regular weekly market report, a report taking issue with the many articles on the Fed and the impending raising of rates, Mark Cuban’s thoughts on a bubble and probably throw in one of our “just wondering” reports on the weekend. You can tell football season is over.
Have you seen the Dax? Have you seen the CAC? Have you seen the FTSE? Have you seen the Euro. The Euro crashes and those markets skyrocket. All of this because of the decision by the ECB to print a trillion or two. It remains amazing that the decision of one man can manipulate their stock markets up and their currencies down. We would have thought that there would be a point where markets ignore moves by people who caused the problems in the first place…but as of now…nothing doing. So the equity bubble continues.
To be brief…mostly a sitting week with a pullback off of Monday’s highs. With the sitting, there was fireworks in the land of biotech as PCYC gets bought and in sympathy, others get juiced. Besides that, a lot of sitting.
Keep in mind, nothing has changed with what is not working. We have successfully alerted you to stay away from a myriad of areas that remain bearish including energy,oil &gas, gaming and others. If anything changes, we will let you know.
The market continues to pull in…but as of this second…no biggie.
We have simple tactics right now as the market works off the recent up move. We keep a list of the strongest names that are pulling into support/moving averages for primary or secondary buy points. When we see a slew of them start to move off these levels, we look to attack. Of course, there are some names that refuse to pull back and just sit tight. These will tend to be the strongest of the strong.
If the pullback turns into something worse, initial support levels for the strongest names will just be taken out. We then look for the next level…usually around the 10 week/50 day moving average. Keep in mind, it takes more than 2 days for this to play out.
Strength remains in many biotechs, semiconductors, medical and other tech-type names. Lastly, pay attention to names that recently gapped up on volume because of earnings. Some of the symbols to pay attention to are ROST,MNST,VRX and HAR. None are buyable here but the strength of the gaps put them into play if they set up again. Strength begets strength most often in the markets.
In order for markets to continue higher, pullbacks are preferable. They work off overbought conditions. They wipe the smiles off bulls faces. They build better bases. Looks like we may be getting one here. Anything is possible but we expect any pullback to be controlled and rotational at this juncture. The one area that pulled in most was the SEMIS as the group was juiced on a big buyout. The groups still looks fine.
For a change, really didn’t see any changes that stuck out today so nothing to report. With the fake employment number coming up Friday, we do expect some jello moving on the plate.
After a darn good move, this 60-40 market is now feeling a little tired. A 60-40 market simply means about 6 out of 10 stocks remain in shape while 4 out of 10 just ain’t happening. Looking farther out, these numbers do not thrill but as long as the major indices stay above their respective 50 day average and as long as the 60% keeps working, no sweat.
So to be repetitive, we remain bearish on a long list of areas…some we have been bearish for quite a long time:
ENERGY/OIL & GAS…except for REFINERS.
STEEL, COPPER, ALUMINUM, COAL and all that stuff.
UTILITIES, REITS as BONDS have topped. Near term , bonds may have put in a low.
We are also starting to see tops in AIRLINES which with the RAILS have held back the TRANSPORTS recently.
Remains a long list of MEDICAL,MEDICAL PRODUCTS, BIOTECH, MANAGED CARE and GENERICS.
RETAIL-(DISCOUNT,HOME IMPROVEMENT, DEPARTMENT STORES, DRUG STORES, SUPERMARKETS , APPAREL)
A few other notes:
FINANCIALS are mostly mixed. Not much there.
GOLD had been emerging but is now still in pullback mode.
HOUSING is the latest group that has emerged on the upside. This group had been dormant for a while.