A FURTHER BREAKDOWN

[email_link]

Well…at least the Mets are winning and Johan pitched the first no-hitter in Mets’ history! That’s the good news.

The bad news is that all major indices broke down though the next support levels we identified for you…making an already ugly market…even uglier. Again, this did not come out of nowhere. We identified for you many many weeks ago all the things that occur during a market top. In order: 

Foreign markets breaking down in advance…bearish new high divergences….stalling at the highs…financials tops…semiconductors top…major averages break the 50 day…bearish wedges and bearish flags formed on an anemic bounce…all leading to this past week.

We have zero good news. When an oversold market cannot bounce and then easily breaks down, it is the worst of all markets. Please do not argue with it.

For starters, most major indices are now trading below the longer-term 200 day moving average. NOTHING GOOD can happen when below the 200 day. The NDX is still above but that is because of only one stock…APPLE…which is holding up much better than most.

To make matters worse, world markets are much worse. As we have taught you, world markets have been leading our market both up and down for many years.

On top of that, the unofficial Kaltbaum indicator of stocks in bullish shape versus bearish is now about 80-20 to the bearish. Just this one indicator has kept us out of trouble. Combine that with our sector analysis which is about 95% bearish…and you have a nasty 1-2 punch. The only areas that are hanging in there are utlilties and some recession-resistant, defensive names.

This is a bearish market. Whether it hits the official bear market number of 20% matters nothing to us. It is more important to figure out a market in trouble way before that occurs…because at 20%, the average stock has already croaked.

We suspect the way the markets work these days that there will be follow-on selling as those that haven’t sold start to realize something is wrong…and that this is not a garden-variety pullback. The best news is that out of these bear phases, new leaders show up. We look to find them in the names holding up best while the market heads south. We believe it is too premature in trying to pick those names out but just as the characteristics of a top showed up, when the bottom comes, classic bottoming characteristics will show up also.

Lastly, since we have been some of the biggest whiners about the massive debt build-up not only here but around the globe, we are constantly asked how worried we are. The simple answer is VERY WORRIED. And frankly, we can almost sum it up in one assinine statement by the Nobel Prize winning economist Paul Krugman. And we quote: “We’re talking as if a billion dollars is a lot of money” Yup…our favorite punching bag said that about the losses in green energy companies like Solyndra. He actually said this about $1 billion dollars of taxpayer earnings. We don’t know even how to answer this kind of disrespect for the taxpayer…but yet he is an established economist on the left. The problem is too many in power think just like him…especially the head honcho-top dog-big cheese. The debt has been caused not by you or us. It has been caused by them…and on purpose. They caused it and they are telling us they will fix it…WITH MORE DEBT. Frankly, we don’t care what happens in the market in the short run. We just know that all debt bubbles pop and this one is the end-all-be all of debt bubbles. We hope we are wrong…but you are now seeing the repercussions play out in real time in many areas around the globe…and unfortunately, we are the biggest culprits. The only reason we are not in some of the other’s shape is we have a man named Bernanke that prints money at will. We have a Treasury Secretary that says we need more deficits first and then worry about them later. We have a President that has stopped pretending he gives a crap about the debt. Need we say more.

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.