If we were only watching the small caps, the mid caps, the NYSE, the Transports and the many areas not thrilling like retail, like restaurants, like housing…we would not think too much of the recent rally. But since everyone concentrates on the Dow, S&P, Nasdaq and Ndx, everyone is thrilled.
We just want to tell you this is still more than a split tape as by our count, even with the recent rally, only out 30-35% of stocks are in good shape, only a handful of sectors are in good shape and this remains the most big cap vs small cap market we have seen in ages.
On October 1, we thought a low was being put in. On October 2, we thought a good low was being put in. We are now at the point where bullishness has picked up markedly, new high vs new lows is pathetic for the move the market just had and as we said, there are plenty of things still not thrilling. We are also watching closely how the financials got jacked up on “fed” day and have given it all back since. It will not take much for us to start talking that Friday’s action marked at least a short term high. Time will tell.
We are not taking away from what is working. It has just been decidely mega-cap…led by the Goog, Amzn and the like. Narrow market advances can only last so long.
More bad news continues to come out from the Valeant Pharmaceuticals (VRX) story. We have no idea how this ends up but the writing has been on the wall for months for the stock. Due to popular demand here is another look at Gary’s article from last week, promptly titled, “Anatomy of a top.”
As we write this, Valeant Pharmaceuticals (VRX) has dropped from $264 down to a current price of $88 and change in just two months. There has been issues with this company in the last few weeks as a few are accusing them of accounting chicanery as well as other things. In another chapter of our “Anatomy of a Top,” a keen eye would have taken you out in the 220 to 240 range, never having to deal with this carnage. Keep in mind, when something tops, one never knows how bad things can get but one needs to know what a good top looks like. The stock was a classic case. The following chart shows a break of the 50 day moving average on August 20 (POINT A). This is the first break below that important level since last October 2014.
But one can blame the bad action in the market at that time. It is the rest of the action that told us that the stock was topping. Notice how for four weeks the stock could not get going. Volume contracted indicating no interest in buying the stock back up. Notice how for four weeks the stock stayed below the all-important 50 day moving average, a complete change of what had been done for the prior 10 months. That brings us to (POINT B) on September 21. That day, the stock showed distribution right off the 50 day moving average which turned into the first stair step to the downside. The stair step completed just a couple of days later on September 25 (POINT C) when the stock did the one thing a bull does not want to see and that’s a break of the longer-term 200 day moving average. If the 50 day didn’t get you out, the 200 day must get you out. As you can see, since that day the stock is now been cut in half. To repeat, there is no way of knowing how bad something is going to get. But there is a way of knowing when something is topping out and risk has picked up. Valeant was a classic leading stock topping out, breaking down and then breaking down badly.
Alright boys…time to wake up those bats as we head to Citifield.
We will have our usual award winning, in-depth, over-the-top weekend report to you on Sunday. Do not miss it.
Lots of jello moving on the plate as housing tops, retail stinks, biotech blah, commodities still aint happening and small/midcaps continue to underperform but if you notice anything about the overall markets, there is a clear lack of selling going on right now. Of course, that can change but the good news this second is we do not have to hear from the Fed until December. We like quiet. We like when markets do not have to deal with the constant interference of central banks. Whoops, we still have to deal with other central banks.
“Fed keeps December hike in play!”
“Fed hints December hike is in play after all!”
“Officials stand pat on the rates but tone down global market worries!”
After months and months of teasing, amazingly pundits are still taking the bait that the Fed is going to raise rates. How many more times will they fall for this?
Bottom line, another month of teasing. All one has to read is what we have been saying forever. “The fed will never raise rates until markets force them to!”
Bottom line, markets continue to love 0% interest rates, markets continue to love the printing of money and markets continue to love negative interest rates. China continues to print in order to buy stocks. Japan continues to print in order to buy stocks and Europe now announces an extension of printing money as well as an expansion. To throw the cherry on tops, little did we know that Sweden was printing money and now announces an expansion.
The best news about Wednesday is that the under-performing Russell and mid caps had a fabulous day. This action started right out of the box. On top of that, the underperforming financials romped off of the continued 0% interest rate policy.
Short term, markets continue to be stretched to the upside and overbought but so far that condition hasn’t mattered. Markets continue to trace out a 1998-type pattern. We gave that very little chance of happening…thus the reason we don’t predict. Let’s hope it continues
A few thoughts:
Before the market topped out, the average stock was heading south before the indices. It is early but already “feeling” a little of that right now.
Seeing and feeling the “nifty-fifty market we experienced before the top. Google and Amazon both had strong gaps that were sold into on Friday but bought up yesterday. Would love to see some time put in here building handles or a little base in here. Leave no dought these 2 have a major influence on the NDX.
This could change but as of this second, go look at the Russell 2000 and the mid-caps versus the QQQ and larger cap indices.
Apple reports after the close (we have no position). The stock as well as the suppliers continue to act icky…but that can change with earnings.
The Fed this week. Doesn’t it feel like we have a Fed meeting every week?
Its METS time!
By Gary Kaltbaum
Fox News Business Contributor
The first number is earnings. The second number is sales.
The fundamental side!
EBAY…-7,-2…the stock gaps up and continues.
COKE…-4,-5…the stock rallies.
MMM…+4,-5…$6 gain on the news…and they warned going forward.
CATERPILLAR…-55,-19…the stock reverses up. Yes…that was -55 and -19.
INTEL…-3,-1…reverses up and continues up.
JPMORGAN…-19,-6…initially down, reverses up and continues up.
GOLDMAN…-37,-16…reverses up…hanging in.
MICROSOFT…+3, -12…huge gap up for a stock like MSFT.
TEXAS INSTRUMENTS…0,-2…gaps up big and continues up.
UNTITED TECH…-2,-6…rallies 4 days in a row.
We can go on and on. Earnings and sales stink and they are not getting any better. So what is going on? The same thing that has been going on since Mr. Bubble went into the easy money playbook…more easy money. Think about this. We have had 0% rates for about 7 years. We have not hiked rates in about 9.
0% rates pervade the globe with many areas now having negative rates. According to my faulty abacus, there has been $15-20 trillion printed with many areas still printing. So what happens? MORE EASING! Europe and China announce more easing…and again, markets buy into it. China cut rates for the 6th time even though they say they are still growing at 7% and Europe announces an extension of QE as well as telegraphing more QE…so away we go. Do not forget, China arrests people if they just say the wrong thing about markets and has admitted to printing big Yuan to buy up stocks. Do not forget, Japan is still printing a ton and has been buying up their market with debt.
So how does this all end? We will let the predictors deal with that. We have our own opinion but we do not want it to get in the way of what is currently happening. And what is currently happening is the market buying up bad news and gapping up good news in names like Google and Amazon.
Markets are near term stretched to the upside and quite overbought. One would suspect pullbacks are now in order but in bubbleland, anything is possible. Keep in mind, there is a crap load more earnings ready to come out with the big enchilada in Apple reporting on Tuesday.And now we get to be held hostage again by the egomaniacal Fed that has to be front and center on a daily basis. Hike…no hike…hike…no hike…blah blah blah.
Large caps are completely outperforming small and mid-caps right now. In the past two weeks, the Dow is up 600 points while the Russell 2000 is flat. The same for mid-caps. It should be obvious by now the Nasdaq and NDX continue to be led by just a few large names. Keep in mind, there are still plenty of areas not working…with Retail actually breaking down badly late last week. Massive overhead resistance straight ahead.
The METS in 5 or 6.
“THE GRM (GOVERNMENT RUN MARKETS) WORKING OVERTIME AGAIN”
By Gary Kaltbaum
Fox News Business Contributor
We will be repeating a lot of this in our award-winning weekend report.
We are not a believer in giving out time frames and targets because no one really knows where markets are going to go down the road or in what time frame. That is just guesswork. We had been bearish for quite a while when we called “a good low” on the “poor” unemployment news of October 2. Our simple thought was that 3 reversal days to the upside culminating with a monster reversal on the bad news was the evidence that markets were defended at vital support and sellers were finally wiped out for the time being. As we stated, we never mention targets and time but our best guess at the time was a rally into 2040ish S&P and that would be about it. That thought changed yesterday and today as the GRM is back in force.
Europe not only announces an extention of maniacal money printing and an addition of the same but China announces another massive easing program this morning…which really juiced the futures. Let’s get this straight…China is growing at 7% but they have to ease? At least they told the truth. They said their goal was to lift prices.
Earnings and sales growth sucks…but in GRM, it does not matter much. It’s all about the easy.
For example…here’s just a couple.
MMM sales drop of 5% and lowers guidance…rallies $6.
Microsoft is up 8% this morning on no earnings growth and a 12% sales drop.
We can go on and on about the sales and earnings drops.
Leave no doubt, the only goal of the GRM is higher asset prices. With an unlimited supply of conjured up money, the game continues.
Please remember the recent drop the market had just on the tease our fed may raise a whopping 1/4 point. It will be just a taste of what ultimately happens when markets stop reacting to the GRM. But as of today…
We have 0% rates around the globe. We have negative interest rates in many places. We have had, according to our abacus, $15-$20 trillion of printed money AND THEY ARE STILL EASING!
The Nasdaq 100 will be skewed this morning as 3 stocks have this index almost triple the S&P. Google, Amazon and Microsoft doing the trick! Have a great weekend….and GO METS!
We waited to write this because we knew Draghi was going to yap this morning. He did not let anyone down as he now telegraphs that a measly trillion/year aint enough and that they will look to be printing more. Of course, the knee jerk reaction is for markets to bid up.
Coming into this morning, while everyone is talking about Valeant Pharm (VRX), we are paying some attention to what happened and what is happening with GS and a few other financial names. Go take a look.
We are also big fans of the semis but now they are skewed as there seems to be another buyout or another rumor of a buyout every day. This is always a help to an industry’s stock price.
Lots more earnings coming out. We make note of TXN as earnings were flat, sales were down but they beat the number as guidance came down throughout the quarter. Lots of that going on right now.
We believe both Amazon and Google report today.