REVERSALS/COMPUTERS AND THE PRE MARKET
-On Wednesday, after 4,268 points to the downside, aunt Mary and uncle Bob left their house in their Toyota Supra and drove over to their EF Hutton office and told them to buy 100 shares of Digital Equipment. Around the United States, thousands and thousands of people got into their cars and did the same. All felt the market had gone down far enough and felt there was value. They went to E.F. Hutton, Dean Witter, Lehman Brothers and many other firms, all buying their favorite company’s stock. Out of nowhere, a major rally ensued. The market experienced its first 1,000 point day ever . Yesterday, with the Dow down 600 points, that same aunt Mary and uncle Bob, drove to see their broker and bought 100 shares of of their other favorite stock, Eastman Kodak. Thousands of others did the same. Out of nowhere, the market experienced an amazing 900 point rally in 90 minutes.-
-We hope you know that was sarcasm. We have watched the past couple months as many people have been blaming the modern technology of computers, programs and algorithms for Wall Street’s drop and volatility. We have news for you. Yesterday’s 900 point rally has been reported to be one of the top five biggest computer program trades in history. We have news for you. Wednesday’s rally was also computer driven programs. We have news for you. The Dow going from a low of 6,469 to a high of 26,951 in nine years with no real bear market was with programs, was with computers and was with algorithms. We did not see anyone complain about them during this amazing run to the upside…yet possibly the first real bear market in almost 10 years and we hear nothing but whining. Very simply, if you’re going to blame the downside, give some credit for the upside. Technology is here to stay. It ain’t going nowhere. Just saying.-
-On Wednesday morning, we told you we were very close to a bear market rally. We did not know when but knew we were getting closer. This thought was based on two simple things. First, the DOW had dropped an amazing 4268 points in just 14 days. Second, bearish sentiment had gone off the charts. We also had the idea that there were just a few days left not only in the month, not only in the quarter but in the year. Of course, window dressing is illegal so it does not happen. 1,000 points came out of nowhere. This led to yesterday morning when we told you not to worry about the market being down 300 points pre-market because we were going to see a lot of gaps and the lots of reversal. Volatility always picks up when price is stretched away from the norm. Well….that was one hell of a reversal. We had no clue one would happen and we certainly had no clue 900 points in 90 minutes. But again, we do know what happens when things get so stretched.-
-We have already been asked a few hundred times in the past day whether we could possibly have seen the bear market low. We never take anything off the table especially with central banks at the ready and the president that watches every tick in the market. We are all for it being THE low. But, you have seen a 2100 point rally in 7 days. You have seen a 1700 point rally in 6 days. Both failed miserably. And…”bear market rallies are sharp, quick, make you feel good, suck you in and bury you soon after.” Maybe this time it is different. So far, to our bleary eyes, this is nothing more than a gargantuan oversold rally in a bear market that by no coincidence happens at the end of month, end of quarter, end of year window dressing period. Again, 4,268 points in only 14 days will get you some serious sized bounces. We suspect there is even more upside to fill some more of that 4,268 points. We will know a lot more on how they pull back this move off the lows. Typically, markets experience an A-B-C rally. A to the upside. B on the pullback. C one more upside higher than the A…and then resumption of the major trend. We do believe Wednesday’s lows will hold for a while though. It had better.-
WILD ACTION AND THE PRE MARKET
After 4,268 DOW points to the downside, the market finally got its counter trend rally. Too many are excited because of how big the day was. We hate to throw cold water but:
“BEAR MARKET RALLIES ARE SHARP, QUICK, MAKE YOU FEEL GOOD, SUCK YOU IN AND BURY YOU SOON AFTER!” We coined this phrase. We already had a 2,100 point rally and a 1,700 point rally during this bearish phase. Both failed miserably. Bear market rallies serve to relieve massive oversold conditions. As we told you, we were very stretched combined with a large dose of bearishness…thus the rally. Let us also not forget that we are in not only end of month but end of quarter and end of year window dressing. Of course, window dressing is illegal so it doesn’t happen.
But forget all that. What worries us most this morning? Europe has had no reaction to our 1,000 point move. In fact, just the opposite as the DAX, CAC and LONDON FTSE are in new yearly lows this morning with decent sized losses.
Futures are down decently this morning…about 300 DOW points as we write this. We are not paying much attention to that. With price still so stretched and extended to the downside, we suspect we are going to continue to get some wild action both up and down. Gaps and reversals, reversals and gaps will be the norm for now. Eventually, it will settle down.
MERRY CHRISTMAS or MERRY CRASHMAS
To those who celebrate, Merry Christmas.
We believe there has been a complete loss of confidence in the president, the secretary of the treasury and the head of the central bank when it comes to markets. We do not think it a big deal that the central bank raised rates to a measly 2.25%. We think it a problem when he, in fact, all three have stated everything is fine, the fundamentals are great and all that crap. It absolutely reminds us of Paulson and Bernanke who kept saying subprime lending was no problem, housing will not go down and the economy was sound…as banks were tanking and the market was trashed back in that lovely 07-08 period. We believe it was just fine for Mnuchin to contact the big banks. We think it a colossal blunder to advertise it as it got the opposite effect expected.We also believe it a mistake for the president to treat the head of the central bank as his personal pinata but frankly, we are not surprised by anything that comes from this man’s mouth or his tweets. We believe a good part of the recent drop was just this tweet. We continue to believe as we have since day 1 that tariffs suck and that Mr. Tariff must change that stance and policy. The fact is and we repeat…”THE MARKET IS YELLING AND SCREAMING WITH A BULL HORN THAT SOMETHING IS UP!”
The next move by the fed will not be raising rates…it will be lowering rates. MARK THAT DOWN. We are quite sure everything you are seeing in the markets is a telegraphing of “something is up” down the road…or maybe sooner.
Some of our quotes from some of our past missives:
“If the lows are taken out, we worry that the big institutions will see it, know it and react to it. You know what happens next.”
“If all these major indices break the lows, you will be hearing “bear market” for the major indices.”
“If the lows that have held three times since late October get taken out, we worry about a”waterfall-type” drop as the big institutions will know market is giving it up for another leg down.”
Well, we got a “waterfall” but we must tell you, 2,400 Dow points in 6 days was not in our mind. This just tells you how much pent up selling there was. This just tells you how much leverage remains in the system.
We have spent countless hours studying bull and bear markets. We are able to pre-date our scans to the first day markets every traded. We must tell you that we believe there is only one other time the market became this bent out of shape on a near-term basis (oversold beyond belief) and that is 1987. We count in the mid-single digits the percentage of stocks above the 50 day moving average. We have the Dow an amazing 3,236 points BELOW the longer-term 200 day moving average or 12.9% below. To show you just how bad the 87 crash was, on crash day, price was 26.7% below the 200 day moving average. Eventually, this gap will get closed. We do not know when eventually is. By the way, major indices are down between 15-18% this month. This is not a typo.
We have again been out front and center on what could be a major top in the market. As always, we just do not know how long it lasts or how far it goes. Just like in 07-8, we will be putting out our “ANATOMY OF A TOP” report in the next week going over everything we saw and reported to you this year from the foreign markets topping out early in the year along with about 50% of our market leading to our “uh oh” moment the first week in October when we saw the “good half” of the market top out.
Lastly, “bear market rallies are sharp, quick, make you feel good, suck you in and screw you soon after!” We repeat one of our main bear market rules because based on our sentiment indicators continuing to be at beyond extremes combined with price at beyond extremes to the downside, we expect a good counter-trend move soon. What day? Don’t know. What week? Don’t know but gotta believe we are getting close just to relieve this condition. Often, it occurs on one of the big reversal days. We will be watching for one. Just realize that in no way would it change the big picture.
MNUCHIN…THE NEW PAULSON AND BERNANKE
-BY GARY KALTBAUM- DECEMBER 23, 2018-
-We are really nice people. If we had friends, they would tell you. So when we blast the people in government, it is on behalf of the masses that are hopefully, sick and tired of what these interlopers in the markets have done…enabled massive debt, massive deficits and massive leverage to strengthen DC’s power base. These people are drunk on higher and higher prices, more and more debt as it is their mother’s milk. We are sure you have heard. That guy Mnuchin who last week stated that everything was fine, the market was overblown, the economy is great and all that crap goes back to the Paulson/Bernanke playbook. What’s the matter? Your friends on Wall Street cannot stand a bearish market? Your friends on Wall Street who again amassed trillions of leverage via that dirty word “derivatives” cannot take any downside?-
-Those who have known us, listened to us, watched us, tolerated us, know we cannot stand anyone who interferes with free markets. Markets are supposed to be the free flow of investing and trading by investors and traders…not by some government dolts that feel they have to play God with the free flow of markets. We loathe central banks. We loathe people like Paulson, Bernanke, Draghi, Yellen, Kuroda, Mnuchin and the rest that think they are emperors of the world because they used to either hang their hat at that place that keeps sending them to D.C. or they graduated at a place that told them what kind of geniuses they were. Don’t you love these people who made bazillions off of free markets now cannot stand to have free markets when they go the wrong way? We have news for them. They will only cause more trouble because if the bubble they created has indeed been popped, then they are just putting off the inevitable that will be worse than the norm as they have done nothing more than stopped price discovery.-
-This Mnuchin dude has shown he is just another that has made zillions living off of OPM and does not have a clue what real markets are about. This is unfortunate because he is arguably the #1 or #2 money man on earth. We thought we got rid of all the easy money people from the Obama administration but it looks like they were pikers compared to these charlatans who pretended to be free market conservatives who are now running the show. Free market conservatives our —. In case you have not seen this, enjoy! With markets stretched, extended and oversold, they had better react well to this latest nonsense! Please notice that some in these meetings are companies that got big taxpayer bailouts…and Citi is still down over 90% from the highs.Again, we are really nice people.-
US AGAINST THEM AND THE MARKET’S CONTINUED NAUSEA
Firstly, we find it funny that anyone would expect any better from these miseries in Washington DC from both parties when just about every one of these “leaders” that are paraded on TV have been a part, enabled and spent our tax dollars into oblivion as we are approaching $22 trillion of debt. That’s $22 trillion of spending over and above the monstrous amount of tax dollars we already send to them. Think about this. We will send them a record $3.4 trillion this year but they will spend $4.4 trillion. Think about this. The first $500+ billion of our tax dollars are going to go to interest payments this year…ON THE DEBT THEY CREATED! Yes…to nothing. Not to the poor. Not to the elderly. Not to the indigent. Not to the children. Not to schools. Not to roads, bridges, streets. Not to the infrastructure that Obama promised his stimulus would go towards. You remember shovel ready projects? We know what was shoveled.Think about this. The RepubliCONS had the White House, the House and the Senate for 2 years. During those 2 years, Federal spending is over $8 trillion. They just sent $5.8 billion to Central America. Ironically, sent $4.8 billion to Southern Mexico, yet cannot come up with $5 billion for a wall. Think about this. The Democrats who say this president is not up to the job, have been a humongous part of this debt. Think about this. The Democrats, who have been calling for troop removal almost everywhere throughout the years and backed a laissez faire foreign policy for 8 years under President Obama, now think it is treason to remove troops. In other words, they are all full of the big ca-ca and continue to only work in their own best interests, not the people’s best interests. Yet, these are the people we are supposed to depend on? As we have stated time and time again, we have never been more optimistic on the people of this country but we have never been more pessimistic on the people running this country. It is over 300 million of us and only 535 of them plus an administration yet we lay prostrate letting them drive us into the ground with their wayward acts. We can go on and on about wayward.
THE MARKET NAUSEA
After what can only be described as an “almost unprecedented” drop, unfortunately, the markets are playing out almost exactly to our bear market rules we wrote up many years ago and recently posted again. We say “almost unprecedented” because we have seen major drops like this before…just not often.
Just a few of the rules that have been fulfilled:
Bear markets occur after many months of narrowing markets. Coming into October, only about 50% of the market was bullish. The other half was decently bearish with most foreign markets in bearish markets. We were in hope that because of seasonality, the good 50% would have a strong but narrow run into the end of the year. All that changed when we saw the “good half” top in the 1st week of October. We knew markets were in trouble immediately but little did we know what was ahead.
In bear markets, rallies are sharp, quick, make you feel good, get everyone bullish, suck you in…and then screw you soon after. (We coined those words!) We just had two very sharp and quick rallies up into resistance before failing miserably. (DOW 2100 points in 7 days and then DOW 1700 points in 6 days.)
In bear markets, the biggest losers will be the names that had the strongest runs during the bull market. Market players will not believe how low some of the most popular names will drop. This occurs because their popularity makes them over-valued, over-loved, over-owned and over-leveraged at the most inopportune time. We are sure you know what those names have been doing. From the peaks, Facebook down 42.8%, Netflix down 41.7%, Nvidia down 55.7% and that’s just a start.
In bear markets, the curtains come down on bubbles, on manias, on money losing companies and on ridiculously priced IPOs as bull markets are friendly to excessive speculation. Bear markets will crush excessive speculation. The “coins,” the weed stocks, companies with no sales and companies with no earnings are being destroyed.
In bear markets, you will be hearing these words more often than CNN covers Trump…CHEAP, VALUE, UNDERVALUED, OVERDONE, IT’S THE ALGOS, ITS THE PROGRAMS, ITS THE COMPUTERS, FUNDAMENTALS ARE STILL STRONG, ECONOMY IS STILL STRONG and our two favorites: “THE MARKET IS WRONG.” We have news for those people who think the market is wrong. THE MARKET IS REALITY. And lastly, you will be hearing the word “CAPITULATION” more often than you will hear the name Kardashian! The problem with capitulation talk is simple. In bull markets, capitulation serves to halt pullbacks leading to more glorious legs up in the bull market. BUT…in bear markets, capitulation only serves to stanch the bleeding for a short time before sellers show up and blast the market again. The word “capitulation” has been completely misused.
Of course, you will not hear the words “bear market” until the major indices hit the 20% mark…but many stocks and many areas will hit that number before the major indices. We are now hearing the talk of bear market because most indices and a great percentage of stocks are now down 20%.
Unfortunately, this is the real deal but even we are amazed at its nastiness. This just tells you how much margin and leverage has been out there because of the easy money as well as the belief that something like this could not happen. In other words, everyone was caught off guard. As we have told you, (another rule) margin and leverage are a bull market’s best friend but biggest enemy in bear markets as greed turns to fear quickly leading to that margin and leverage to come off. Margin continues to contract at a fast pace.
Some other food for thought:
Remember when so many saying China is being hurt much more than us in the tariff war? In December, the Shanghai Composite is down 2.8% while the S&P is down 12.4%. Hear that Mr.Tariff?
People who think Trump firing the Fed Chair would help…we have other news for you. You want instability? You will get it if the president makes that mistake. As much as we have wanted the Fed to be abolished for many years…mistake! And to be clear, the Fed, the Treasury Secretary and this administration have not a clue as to what is going on. By the end of last week, the Fed finally pivoted to what we have been saying and that is the market is telegraphing trouble.
The RUSSELL 2000 is within a couple percent of where it was election week 2016. Many other areas are on the way. For the month of December, the RUSSELL 2000 is down 15.89%, the DOW is down 12.11%, the S&P is down 12.45%, the NASDAQ is down 13.61%, the NASDAQ 100 is down 12.99% and the TRANSPORTS are down…are you ready? The TRANSPORTS are down 17.98% but don’t worry, THE FUNDAMENTALS ARE FINE!
We have absolutely no idea how long this bear lasts or how far it goes. But so far, this is a classic bear market as it plays out. All we want to do and all we need to do is get the main trend and the big picture correct. Leave no doubt, the main trend and the big picture remain bearish. The big worry and our worry for many a year is that all these central banks have been good at one thing, creating big booms and big busts using ever more easy money. For the past 20 years, there has been no such thing as garden variety bull and bear markets. It has been all about easy and easier money leading to booms, which ultimately bust. Time will tell but we are less than thrilled by the degree of this drop.
