MARKETS BEYOND OVERSOLD

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It should now be obvious why we told you to watch those intermediate support levels of DOW 12,700, S&0 1340, NASDAQ 2900 and RUSSELL 780. When intermediate support gets taken out, it usually means there is some ugly to come. This is exactly what happened as markets here and across the globe had somewhat of what we would call waterfall-type action. The break caused some serious technical selling but even we could not predict how vicious the selling would become. Amazingly, the Russell and the NYSE are already below the longer-term 200 day moving average with the rest getting close.

So…by the book:

The market remains in a corrective phase. All major indices have broken support. Foreign markets are worse. We suspect all the major indices will tag the 200 day…and then we will re-evaluate from there…but suspect in the coming weeks to break. This recent drop has hardly left any stone unturned. As we told you, it was not a good thing that defensive areas like food,drugs,beverages and utilities were starting to lead while the financials, semiconductors and retail were breaking down. On top of that, leading growth names were starting to roll over badly.

There is no way of knowing how long this lasts or how far it goes. But we are still in May. The past 2 years saw the market swoon in May and not turn until October. Our best advice is to have a very sturdy umbrella out because as of this second, sellers have a strong upper hand.

Shorter-term, the market have become beyond oversold. Just keep in mind that the short term is the trees. The forest is the longer term and for now, the longer term is starting to look downright ugly and if those 200 day moving averages are taken out…well, you should know what that means to us. The fact that the market could get so oversold is actually not a great thing…and until things change, you must respect the action.

As for why we are so worried here, we start with the two most important aspects to our work…and that is the percentage of stocks and sectors that are in uptrends or downtrends. As far as sectors, we are down to just a few and they are mostly ultra-defensive like food, beverages, utilities and the like. Even they were pulling in late last week. As far as stocks, the unofficial, abacus counting percentage of stocks in uptrends is now down to about 30% of stocks. Just a couple of months back, it was in the 70s so the deterioration has been swift.

We will have much more in the days ahead. Just remember, bear phases do happen. They are a natural part of the market. Our overall issues remain the same though. 1) We continue to have a socialist as President who believes Washington should dictate where all earned money should go. It is amazing to watch this President in agreement with the new French President. You may want to read up on Hollande’s economic thoughts. Oy vay! 2) Europe remains a basket case as socialism has never worked. Weren’t we told Greece was saved ten times? We have news for you. Greece is not the biggest issue over there. 3) Though housing stocks have been strong, we continue to believe the overall housing market has several more years of a bottoming process. We do understand some places will be better than others. 4) An imbecilic fed that believes the only way out of a debt and leverage problem is with more debt and leverage. 5) Lastly, and as we have been telling you for years…a clear lack of concern about the massive deficits that crowd out the private sector by those that are in power.

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.