Markets=Yuck!

We continue to believe we are in the process of a big topping out process of the central banks- induced bull market that started in 09. We believe once again that central banks have created bubbles all over the place and that ultimately there will be heck to pay. We just don’t know when heck shows up but we can surely stay one step ahead of it or in lockstep.

For months and months, we pointed out to you the deterioration in the markets. For months and months, many stocks and many sectors went by the wayside. For months and months, commodities continued to lead down. As the market narrowed, eventually, the major averages would follow suit. That occurred in August as markets melted down. On October 2, we told you we thought a good low was put in. 2 weeks ago, we started telling you how narrow the market rally off of October 2 became leading us to think it was acting again just like it did before the market was whacked in August. This also led us to compare all this action to 1972-73, 1999-00 and 2007-08. Narrow rallies are bearish. Simple as that.

As we have explained to you on many occasions, bull market tops usually take time. The big money distributes stock slowly but surely. As the average stock and sector tops out, the big money finds a narrower and narrower area to park money in. Finally, under the weight of all the damage, anything that has held up, tumbles. It is at that point the masses figure out how weak markets are. It is at that point the indices finally make it known that the markets have big problems. The only difference is that the characters and the amount of time changes. In the 2007 top, it was financials that led down. This time, it is the commodities.

After the commodities, Transports topped (Nov 14), Utilities and real estate (Jan 2015), small caps vs large caps (early in the year),  new highs vs new lows (Jan 2015), China bubble (May 15), advance/declines(early summer), Retail (June 15), Semis (June 15), Biotechs (July 15)…the list goes on and on.
Putting it all together, only about 25% of all stocks remain in shape. This number never got higher than 40-45% during the narrow rally. This is not the type of action that leads to long lasting rallies. In fact, it is just the opposite. On top of that, recently, when a couple of major indices were just off of recent highs, amazingly there were over 500 new yearly lows. We do not think we have ever seen such a negative divergence like this. To make matters worse, the amount of sectors in good shape could not get counted on two hands. Again, another huge negative divergence. This takes us to last week’s nausea. All major indices are now back below the 50 and 200 day average. The small and mid-cap indices are a lot worse. We also have to make note that the Transports have broken the September lows even though Oil has plunged. And Yellen wants to raise rates into that?

Shorter-term, markets are now beyond oversold but it is actually a negative how oversold things have become. Just keep in mind, vicious bounces can happen any time but that will not change the big picture.

At the very least, you should continue to avoid all the areas that are bearish and now start paying attention to the major indices and their further support levels. We will also be watching what we have been calling the new nifty 50ish  names that everybody has been flocking to. When they go, get the fork…and this week, sellers finally showed up. For those names, watch Amazon at $622, Google at $734, Facebook at $100 (sitting right on the 50 day here), and Netflix at $113 (the 50 day average). For the major indices, watch Dow 17,210 and then 16, 887, S&P 1990 and Nasdaq 4908 and then 4836. A break below all these levels…say good night.We now have to deal with the egomaniacs at the Fed who will continue to want to be front and center and continue to want to control markets. We still do not believe they are going to raise rates but it really does not matter. If they do, it would be  meaningless as going from 0-1/4% TO 1/4% changes nothing.The only thing we would have to say is that after all these years that we actually had some economic growth, they would actually be raising rates into crashing commodities, suspect Chinese economic numbers and the transportation index that continues to swoon even though oil prices continue to go lower. We think markets are in trouble no matter what.