JUST LETTING YOU KNOW…
Over the past few days, we talked about things we were following in the markets that you can say were somewhat of a warning shot.
We talked about the Russell 2000, really starting to underperform and break short-term support that there on Friday.
I talked about New High list that, a year ago, we were at around 700 and now we’re at 150.
I talked about the commodities areas that are just going back to their bear market very quickly—steel, copper, aluminum – anything you drop on your foot and it hurts.
And that last week, we added in the Gold and the Silver.
That doesn’t mean the markets gonna come down. It just means, “a little signpost.”
Remember that markets just don’t top. Certain things have to happen. It’s like a bunch of soldiers…you lose a few and gets a lot tougher.
And I told you yesterday that it was good news that the Dow was down 90 and finished down only 15. But it was bad news that underneath the surface, things were kinda worsening AND the Semiconductor Index was breaking down too.
So you put a few of things together and you think…ok we’re going to pull in a bit and I said to you, “I think we’ve got a little corrective work.”
We got come corrective work today.
Now at the outset let me be clear about this little down move.
- I have no idea how long it lasts and how far it goes.
- I suspect it goes further.
- What do I do? Keep my list of those names that refuse to go down while the market goes down and which act better than the market, consolidate – and then move out again. That’s what I do.
It’s easiest to isolate strength when the market is weak. It’s easiest to isolate weakness when the market is strong. So it’s tough to really isolate what’s really strong, when you’re strong. This pullback will enable me find where the real strength is in the market.
Do I have a guess? No. But I do have some thoughts.
I would suggest that the only thing I’m worried about here is the feast or famine issue in the market…the love and hate. You know love and hate are very close emotions. We’ve seen that when the market turns down…man, it turns down viciously. When it turns up, it turns up viciously.
Just want to make sure that this little turn down here doesn’t turn into anything more than that. And the answer is, I don’t know.
WHAT AM I WATCHING?
Well first off, as you know, if a stock, sector or market breaks below the 50-day moving average, it can’t go up. So I disqualify those stock or sectors from really wanting to own them. And it’s physical fact of life. If you’re below the 50-day moving average, you can’t go higher. You can consolidate into a new trading range and then turn back up. But until you turn back up, we couldn’t get less about you.
So today, of importance – a lot of stocks broke the 50-day moving average — and a lot of them on an increase in volume which probably means those stocks are done for now. That in turn means that are fewer stocks that are working for the market. So I’m just putting that out there to you.
WHAT LED UP TO THIS LITTLE CORRECTION
- Russell divergence
- Advance/Decline line divergence
- New High divergence
- Semis rolling over
- A lot of bullishness
- The commodities, just never getting going
So again…I don’t think we go down like this and turn back up. But I wouldn’t be surprised if we bounced up a little bit here and then came down again.
Just letting you know that there is likely going to be more price and time of corrective work here. You heard me say on my radio show that I want that.
If this is one of these 9 to 12 month bull markets, secondary buying areas can be powerful when your strongest stocks stop going up because the market pulls them into support or moving averages…and then they start coming off of those areas with volume. These are great areas to look at.
So that’s what I’m going to be paying attention to. And, of course, I will be paying attention to leading areas of the market and the leading stocks in the market.
And I will let you know.
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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.
