Counter trend rally ends!

“COUNTER-TREND RALLY ENDS”

By Gary Kaltbaum- September 21,2015
@GaryKaltbaum
garyk.com
Fox News Business Contributor

When you take a step back and forget about all the noise (the Fed) surrounding us and just go back to what we have been telling you about the forest, it was not really hard to figure out why we wrote to you that Thursday’s late day reversal was the end of the bear market rally…and to be clear, in spite of what many pundits continue to say, stocks are in a worldwide bear market.

For starters, the market topped out through a long process of deterioration throughout the year. Little by little, the markets internals weakened as leadership narrowed. It got easier to call when we told you about the top in the all-important transports and semiconductors back in March and May respectively. All that needed to happen was the major indices to break support, catching up with the average stock. That occurred on August  20 when the S&P broke the vital support we outlined for you.

After what can only be called a meltdown, we thought the  August 24th scam open combined with washout-type action marked “A low FOR NOW”. Notice the words  A and FOR NOW that we wrote to you. Markets were just about as stretched, extended and oversold as we have seen since starting in the business. The only other one we thought was worse was October/87. Thus a rally started. We told you in bear markets, rallies serve to work off the oversold conditions in time and price as moving averages are now declining as price bounces into them. It took a “sell the news” type situation as we think Wall Street was thrilled that the Fed stayed with their maniacal 0% policy. It wasn’t too long until disappointment set in. The big money spoke up.

That all said, time to understand why we remain so bearish. The reasons are many.

For starters, bulls should be very scared that markets are no longer acting so favorably to the easy money policy and easy money yapping that has pervaded the financial markets for so long. We have been in the camp that central banks had control of things. That all changed in the past few months. On top of that, by our proprietary count of thousands of stocks, over 80% of all stocks remain in bearish mode with many rallying right to resistance levels before being creamed late last week. To make matters worse, we can continue to count on one hand  the amount of groups that are in good shape.  In addition, the bear market is a worldwide phenomenon. These are typically the worst types. Furthermore, all major indices are below the 50 day moving average which is now below the longer term 200 day average…a classic characteristic of a bear market. It’s also negative that margin debt is now decreasing. As we have told you, margin debt is your best friend in bull markets but your worst enemy in bear markets as greed turns into fear which leads to margin coming off, worsening the drops. We believe that was one of the culprits of the initial vicious drop. Lastly, financials are breaking down badly. Financials are an important cog in the wheel. When they go, markets usually go. Fundamentally, one would think they would do well when the fed leaves rates at 0%.

The only sectors that remain on our favorable list are:

Cruise Lines, Auto parts retail, Alcoholic beverages (we get it),footwear, airlines (not all), internet travel, housing and housing-related…and that’s about all.

We need not give out support levels in this report as there is some decent room to the downside before we are there. Nearer-term, we wouldn’t be surprised if things bounced around in here.  And lastly, to answer the question: what if the Fed turns around and announces another round of QE? Good question because we think that will be their next move. We suspect markets could pop on the news but also suspect the big money will just use it to sell into. We shall see when and if we get there.