WEEKEND NOTES AND BEAR MARKET

BIG GAP TO THE UPSIDE IN THE PRE-MARKET….NO REAL NEWS EXCEPT IBM BUYING RED HAT IN WHAT WE BELIEVE IS AN ACT OF DESPERATION…AND THEY OVER-PAID. WE WROTE THIS REPORT OVER THE WEEKEND BEFORE THIS MORNING’S GAP!
The evidence at hand is all one really needs yet so many continue to turn a blind eye to:

Every major index trades below short, intermediate and long-term support with some trading way  below long-term support.

 

So far, despite very stretched and extended conditions to the downside, rallies have been anemic and short-lived.

 

Perceived good news has been sold off. Netflix gapped to the upside $30 on strong subscriber growth and is down a measly $80 from that day. That is just one example. There are many more.

 

The SOX is at new yearly lows potentially showing a major, gigantic top in placee.

 

FINANCIALS…see SOX!

 

Just tons of earnings blow-ups in many industries. Just on Friday, you get AMAZON (internet retail), MOHAWK INDUSTRIES (carpet), SVB FINANCIAL (regional bank), EQUINIX (data centers and other stuff), GOOGLE (search, ads), PROOFPOINT (software security), MOODYS (ratings service), WESTERN DIGITAL (disk drives)…and many more…just on Friday.

 

We can list dozens and dozens of names from the past couple weeks. Very simply, these kind of blow-ups do not happen in bullish markets.

 

1050 NEW YEARLY LOWS…15 NEW YEARLY HIGHS

 

WORLD MARKETS even more bearish…just about all below long-term support.

 

We repeat, this downdraft did not just start in early October. Almost half the market, as well as many markets around the globe were already bearish. Through the years, we have always emphasized it is these narrow leadership markets that are easier to sell off when markets decide to sell off.

 

We repeat, margin remains near all time highs. Margin is a bull market’s best friend. It is a bear market’s biggest enemy.

 

We repeat, be careful about listening to “the economy is strong, earnings are strong” reasons for why the market has to come back soon. We are all for that but news flash, the market does not have to come back soon if it doesn’t want to…and for the hundredth time, markets look forwards, not backwards. Every time we have said that, we have been shrugged off. The nine recessions since 1956 began a median of eight months after a primary S&P top. Repeat: The nine recessions since 1956 began a median of eight months after a primary S&P top.

 

Have we seen anything that represents light at the end of the tunnel? As far as market action, not a one. But there are other things we keep in our file manager.

 

We watch sentiment. Price moves emotions. Price moves fear and greed. It should be obvious that unabated greed is turning into fear. Pessimism has most definitely picked up but haven’t seen the extremes that usually stanch the bleeding but no doubt heading that way.

 

We watch the calendar. November and December are very often decent months. BUT…and it is a big but…we pay attention to price first, everything else second. Price still sucks…and the NY Giants offense still sucks.

 

Shorter-term is anyone’s guess. Eventually the daily bottom callers will get a strong bounce. The fact is a strong bounce can happen at any time. It can happen tomorrow. It just cannot be predicted. Big bounces can come out of thin air. Remember, big bounces in bearish phases are to be sold into.

 

Our most important words of advice during bearish phases is that we would rather be a little late than too early. How do we know? Did you buy anything in the past week?

THE TREES/THE FOREST PART 2

By Gary Kaltbaum October 26,2018
We were asked on tv yesterday whether it was good that right after a 600 point drop, the market got back 400 the next day. We simply replied that we did not see it as down 600, up 400. We saw it as down 2400, up 400. In other words, the trees were the two day, down/up move. The forest was everything that has happened all year and the nausea since the recent highs. In a nutshell, we hope that explains the thought process. The trees are the short term…a 1 out of 10 on the importance scale. The forest is the big picture…a 10 out of 10 so once again, the big picture.
The big picture is:
Before the BIG 4 indices gagged, about 50% of the market was already bearish. For weeks and weeks, we listed for you AUTOS, GAMING, PAPER, STEEL, COMMODITIES, CHEMICALS, HOUSING, HOUSING-RELATED as well as other areas…and to be clear, many of these areas have not just headed down, they have been smoked. Then came the all-important SEMICONDUCTORS and FINANCIALS. Then came the broader market measured by the SMALL and MID-CAPS. For months and months, we told you many important foreign markets were already in a bear market. The big picture had already weakened. In already weakened and narrow markets, it is easier to sell off the rest if they decided to as termites were already eating away at the market’s internals.
The big picture is that in early October, they finally came after the rest. On a daily basis, all the leading groups topped out. All the leading growth names topped out
The big picture is that we have always told you markets are great forecasters of the future. Sometimes this works in the short run as earnings and economic slowdowns can be fleeting. And sometimes, they are of import. The big picture is that NOW we are catching wind of what the underlying market had been telling us. Guidance is coming down…and is coming down everywhere. Texas Instruments to beer…to machinery…to the NY GIANTS offense. Global economies are slowing down. Also, as you can see, the head honchos, top dogs, big cheeses of the market are not immune as even the almighty AMAZON (AMZN) cuts guidance markedly.  To accentuate this theme, notice what is holding up best…UTILITIES, CONSUMER STAPLES and DISCOUNT RETAIL, all the areas that benefit most from slowdowns, as they are more resistant to the slowdowns. We must also add that over 1/3 of S&P companies that have reported have mentioned tariffs in their conference calls. Hear that Donald?
We do not know exactly how this plays out in the short run. We have no clue how we finish today…but again, the short run does not matter much. The big picture is everything. Also:
All major indices, in fact, just about everything now trades below not only short term, not only intermediate term…but now the longer term 200 day moving average. Absolutely nothing good can happen until price gets back above…a physical impossibility. Only bad can happen staying below these levels. It is imperative price gets back above before we can even think about talking positively. It is simply impossible to have bullish markets when trading below.
Secondly, and this is meaningful, margin is still at all-time highs. Remember, margin is the best friend of bull markets as margin accentuates positive returns. But margin is the biggest enemy in bearish markets as it accentuates the downside. As markets worsen, margin always comes off…which in turn, makes the drops harsher. The emotions of greed and fear will be moved by price. We suspect if we continue lower, fear will drive margin down, worsening the drop.
We wish we had better news but while many deal with the idea of hope and will call bottoms on every uptick, we have always dealt with the idea of reality AND PRICE IS REALITY. We are also a wee bit worried that almost no one is calling for a bear market in stocks. In case you have forgotten and we understand why, bear markets have not been extinguished…and many areas are already in bear markets.
Lastly, we expect that in the weeks ahead, Powell and company will start floating noise that incoming data is telling them to slow their roll. We suspect we are already at or near the end of the rate hikes…at only 2%…and Trump may just need to call helicopter Ben.

MARKET NAUSEA AND PRE MARKET

The trees….short term moves…a 1 out of 10 on the importance scale. The forest…bigger picture…a 10 out of 10 on the importance scale. Too many want to call the bottom. Too many playing in the trees. When you have a chance, go check out the charts of the DOW, S&P, NASDAQ, NDX, SOX, XLF, KRE, XLI, XME, XLB and everything else under the sun. For lack of better words…an October meltdown. JUST REMEMBER…this did not start with the popular indices coming down. We wrote to you each week that the BIG 4 ACT FINE but half the market as well as foreign markets are sickly. Narrow and weak internals are easier to sell off if they decide to sell it off…thus you see what you are seeing.

Futures pop back up this morning…THE TREES. Stay in tune with THE FOREST. Everything except the most DEFENSIVE of all areas like UTILTIES and CONSUMER STAPLES now trade below longer term moving averages. The Dow ETF closed below its 200-day moving average today for the first time since March 2016, ending its longest run in its history…and the DOW usually holds up best when markets are hit. We have no clue to today and the short term. Just remember…THE FOREST!

MARKET NOTES AND MORE

BY GARY KALTBAUM- OCTOBER 23, 2018

“The sea was angry that day, my friends – like an old man trying to send back soup in a deli.”
George Costanza
So let’s recap what we saw, what we said and where we stand:
World markets turned bearish months ago and never came back.
The U.S. market had only about 50% of it in good shape while the DOW kept moving to new highs into early October.
While the DOW kept moving into new highs in early October:
Amazingly, new yearly lows picked up. A who’s who of industry were hitting new yearly lows…again, all while the DOW was hitting new highs. HOUSING, HOUSING-RELATED, AUTOS, METALS/MINING, MATERIALS, CHEMICALS, PAPER, FOREIGN MARKETS…and that’s for starters.
Advance/declines topped out while the DOW hit new highs. 
More and more names and more and more sectors started to break down (the other 50%)….while the DOW was hitting new highs.
GROWTH STOCKS were topping out while the DOW was hitting new highs.
Small and mid-caps broke down while the DOW was hitting new highs.
TRANSPORT names broke down while the DOW was hitting new highs.
The two most important areas to our work, FINANCIALS and SEMIS broke down while the DOW was hitting new highs.
We did not believe those who have been calling for a bottom every day.
We did not believe the many that said the market cannot go down because the economy and earnings were strong. In fact, markets look forward, not backwards. We were worried about what markets were telling us going forward. If this continues, we will eventually find out. 
When markets do indeed top, money flows out of risk and parks itself into the largest mega-cap, defensive areas before even those areas succumb to the overall weakness…thus the DOW strength.
This is the worst we had ever seen the internals of the market with the DOW only down about 6% from the highs.
Defensive areas are starting to lead…GOLD, CONSUMER STAPLES, UTILITIES…
THE FACT WAS THE BROAD MARKET WAS ALREADY BEARISH AND WAS JUST WAITING FOR THE POPULAR INDICES TO FOLLOW SUIT.
If we take out the recent lows, we expect a “give up” as the big institutions that were defending longer term support, “give up” as they see just how weak things are.
This morning:
This morning, the market will open poorly. First, if they cannot reverse today’s pre-market nausea, do we dare say another leg down? The “give-up phase?” A few are calling for, actually hoping for a reversal today. Reversals are always a possibility. They are just guessing. We predict nothing. A big reversal would be good news near-term but would still not change the big picture. The only good news right now is that MANY are going to convert to the bearish side. 
The media who hardly covered 9,000 DOW points to the upside will now cover the “TRUMP DUMP” 24-7.
Trump will blame Powell.
Powell will no longer raise rates this year.
If this indeed means the economy is stalling, expect the next Powell move is to lower rates.
Trump made up this latest  tax cut out of thin air yesterday to stanch the bleeding. The market was ignoring the China meeting b.s. so had to go to something else. There is no chance of another tax cut any time soon.
Every 100 DOW points will matter to November 6th.
As we have stated, it is not the news, it is how markets react to the news. CAT is down $11 and MMM is down $16. Europe will be a problem. Asia will be a problem. Debt and deficits will be a problem. Remember, it is only bad when markets come down.  
 

The Giants are still pathetic with a coach who should not be coaching high school.
If we win the megamillions, you will find us in our new Amalfi Coast office. 
Wish we had better news. If this is a top of consequence, it will be another in a long line of classic tops…played out like most tops we have experienced…in textbook fashion.

WEEKEND NOTES AND PRE MARKET

Futures are up…yippee! For a change, a strong last two days from China. China continues to ease even though they tell is economy grew at 6.5%. Hmm!

Recently, while we have watched many flail away calling the bottom on every uptick, we have let the market dictate policy with its price action. To put it mildly, price action remains about as suspect we have seen in quite a while. Remember, this recent downturn did not come out of thin air. While the DOW kept hitting new highs, many new lows were occurring, advance/decline figures had topped out, a laundry list of industry had topped badly with many at new lows, small and mid caps had broke support, the transports had broke support, the semiconductors were blasted…again, all with the DOW hitting new highs. Our studies have shown that when markets do indeed top, money will flow out of risk areas and find its way into the largest, liquid, boring mega-caps. This enables the big money (which has to be near fully invested) to avert some of the big drops. It is sell high beta, buy low beta time. Friday was another case in point as the NASDAQ was up almost 100 on the open when the DOW was up 200. Throughout the day, the gap open enabled the big money to again sell the risk. You can see all day the NASDAQ losing its bid on any pullback in the DOW. This has now been going on for quite a while.
Earnings reactions have not been thrilling. The standout is Netflix (NFLX)…gaps up $30 on perceived great numbers and drops back $45 in 3 days. That wasnt aunt Mary and uncle Bob selling. That is the institutions that have over-loved, over-owned and over-leveraged themselves in names that have worked for so long.
The “BIG 4” of the NASDAQ, NDX, DOW and S&P still trade in and around the 200 day average and a little above recent lows. If these “BIG 4” take out recent lows…well, not sure we want to go there.
Leadership is in UTILITIES and CONSUMER STAPLES. What does that tell you? Hoping for better days ahead but less than thrilled at everything we are seeing.

SHORT MARKET NOTES

By Gary Kaltbaum- October 19,2018

In a sea of red, in a market where the average stock is so much worse than the major indices, in a market where a laundry list of industries are at or near new yearly lows, in a market where Netflix gaps up 30 points on great numbers and gives it all back in a day…we’ll end the week on what is not necessarily good news but for bulls clinging to hope, some good news.
The good news is that the BIG 4, the DOW, S&P, NASDAQ and NASDAQ 100 are still holding the longer term support/200 day moving average. Of course, a break below and look out. But for now, still holding.
And one more bit of maybe good news. THE WHITE HOUSE IS WATCHING THE MARKET. For the umpteenth time in past weeks, whenever markets look to be in trouble,we get another timed announcement of a meeting with China…the latest one this morning. We thank the White House for watching and this timely information but eventually, markets will ignore…and if the market wants to go lower, these bumps off the news just gives the institutions higher prices to sell into.
Lots of earnings to deal with. Hope to not see more of Netflix, Snap On or United Rentals.