Changes…and not the good kind!
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.