12/05/2012: GARY ON NATIONALLY SYNDICATED INVESTORS EDGE RADIO BROADCAST
https://archives.warpradio.com/btr/InvestorsEdge/120518.mp3
JUST LETTING YOU KNOW
You know, I use this line on my radio show when we watch markets, “jello moving on the plate.”
That’s line I use very often on my show.
And basically that means, “all over the map.” Things moving this way. Things moving that way. Good. Bad.
And I use the next line, “You can no longer throw darts at the market. You have to be sector specific, stock specific…country specific.
I have to tell you if today doesn’t really back up those words, I don’t what day does.
First off, I have done this exercise with you in the past and I’m about to do it again.
I will explain to you how big, winning leading stocks top out and end their gargantuan runs. There are two ways.
The first way is kinda like what happened in 1999 – 2000, where the Nasdaq itself had what is a called a Climax Run. Go look at a chart of Qualcomm at the end of its move.
Go look at a chart of Gold at the end of 1979 – 1980. Go like at the chart of Nikkei Index in the 1980s. Go look at a chart of Las Vegas Sands last year.
Basically, you’re in a bull market and all of a sudden out of nowhere, it goes straight up and looks almost like the Eifel Tower. And as it goes up, it comes straight down make an Eifel Tower shape on a chart.
And that’s the end.
The other thing that can occur is after a big run, you start to trade in a very wide and loose fashion on the chart meaning…you’re in a bull market and everything is well and good. And then all of a sudden you top out and drop 30%…rally up 20%…drop 24%…rally up 15%…wide and loose.
The other part of that equation in these leading stocks you need to know about is #1 they’re very, very, very loved. They’re very, very, very over-owned…meaning – you will find that some funds will have 50% to 100% of their money in that one stock because it had been working so well.
Loved? Of course they’re loved because nothing’s ever gone wrong. Every correction has stopped. Even in bear markets it came back eventually, for further and further gains.
Next during that wide and loose topping out process, there really isn’t any bad news. Not until you get a really be drop, does bad news start to come out. On top of that, because it is so loved and over-owned, it’s very tough to get people out of it.
Lastly, all the analysts on Wall Street that are used to nothing going wrong defend it to the death. How do I explain that the best? Back in 2008, I remember analysts defending the Bear Stearns with buy recommendations even when it was down 90%. I’m not making this up. So what you get from the analysts is little announcements, “We reiterate our strong buy. This is a temporary setback. It’s overdone. It’s not reality. It’s cheap. Buy with both hands. Everything’s a-ok.
But there’s a problem. Because when everybody owns it and everybody loves it, when something does go wrong, there’s nobody really left to buy – there’s only one thing that potentially can happen. They’re left to sell.
And when things start to go wrong, you know emotion. You know greed and fear. They’re very close emotions. It’s like love and hate with your girlfriend in college.
And as greedy as somebody is and so positive about something, that sucker will turn in to fear before you can say, “Boo…what happened?”
And then it starts to feed on itself.
But it’s down 10%. And that’s happened before. No biggie. It’s down 20%. That’s happened. Don’t worry, everything’s okay. It’s down 30%. Hmm. Well that’s happened too because we had a bear market and it went down 40% to 50% and it still came back! And then it’s down 40% and it’s down 50% and you wind up being in the web.
Now we’re discussing ones that don’t come back. They don’t recognize when a major top is at hand. And why do major tops happen?
The stock had a massive run already and as I’ve told you, great stock all have a shelf-life. All of them. We know that from the past 12 years. All the great stocks of the late-90s are done. Most of them have not even come back half way 12 years later. You know which names. And some of them have gone to zero.
So they don’t want to believe it could possibly happen to their stock.
There’s doubt. There’s disbelief. No…it can’t be.
But every dog has had its day. But in real time, it’s very tough to grasp the potential that, man…that may be done…and it’s already down this much…and what do I do?
And why am I bringing this up?
You know why.
Apple as down 37 bucks today, with the Dow up 80.
Apple has had big and wide and loose action over the past 8 to 9 months. And on this rally up, it could only rally to its longer term bear market moving average and sold off badly.
Horrible…leading the Nasdaq and the Nasdaq-100 to the downside, as they did not listen to me when I told them they need change the structure of Apple with the indices because it’s too big.
And my point is not to tell you that Apple’s done.
My point is to tell you that everything that Apple continues to do reminds me of every major top in every great stock I have every studied.
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Gary Kaltbaum owns Kaltbaum Capital Management, LLC (“KCM”), an investment adviser registered with the U.S. Securities and Exchange Commission. The opinions expressed herein are those of Mr. Kaltbaum and may not reflect those of KCM. The information offered in this publication is general information that does not take into account the individual circumstances, financial situation or individual needs of an investor. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.