JUST LETTING YOU KNOW
We’ve had a correction. Percentagewise, it’s not the end of the world. But, a lot of stocks have been hit pretty hard. There’s been a lot of technical damage done.
And we came into this week in what I call a position of “a market that is in the near-term, a little oversold. Bearishness has picked up…meaning more people are bearish. That’s actually good news.
And typically, you get bounces of it, of unknown price and time. And we’re just talking short-term here. That’s the important thing because that’s the “trees.” The “forest” is that there been a lot of damage. And that the major indices are below the longer-term 200-day moving average and the Nasdaq and the Nasdaq-100 have been leading down. By the way, the S&P 500 is on the 200-day moving average.
A lot of growth names have been just bludgeoned and have shown no ability to rally. So it’s something that has to be watched. On top of that, of course, we just reelected a high-tax, pro-government, heavy government spending liberal/socialist President. And that just means “we want to run the show and we need a lot more of your money to run that show.” Combine that with the Fiscal Cliff. Combine that with sales not very good in the last quarter, and shouldn’t be good in the fourth quarter. Earnings the same.
And you tend to sit back and say, “Ok, what the heck is going on here?”
On top of that, we have not had a full-blown bear market since March of 2009. And we are overdue. And we are heading into the first year of a new presidential cycle which is typically not that good.
So we kinda add it all up and we look at what’s in front of us and it’s not a thrilling sight. And, by the way, did I mention there’s been a lot of blow-ups on earnings.
So we take our time, as we told you with low beta stocks and a build-up of cash weeks ago. And now we’re in this, what I call “soup.” Is every stock getting hit? No not necessarily. Are a lot of stocks getting hit? Yes.
The Housing stocks look like they’re finally starting to succumb to the pressure of the market.
So keep your feet on the ground, eyes wide open – lots to watch.
Notice I’m using the term “phase.” I know our thought process in our wonderful world of Wall Street is that, it’s not a bear market until the market’s down 20%. The problem is that, very often, when something’s down 20%, the bear market’s over. In 2010, the S&P dropped 20% and it bottomed that day. And that was the day they called it a bear market. I’m not making this up. I watched TV that day.
But you have to recognize when you have a “bearish markets.” So here is what I do during bearish markets.
I know for a fact that they end. All bear markets or bearish phases have ended. So during that time, it is incumbent on myself to keep a list everyday of those stocks that are completely ignoring the market…bucking the trend. That said, in this market, they’ve practically got everything to a certain extent. What I mean by that is, they’ve broken the 10-week/50-day moving average. But as I’ve told you that’s not the death knell. Because very often, things drop below and will sit around and not go any lower, while many other things do. So I’m watching stocks that are just underneath and, of course, I’m watching stocks that are staying above.
Now if this is a bear market, one that is going to last six…seven…eight…nine months where the Nasdaq drops 30, the S&P drops 20 if not more…you got time.
So every day, I keep that little list of those names that refuse to break below. For example right now, Mastercard and Visa are staying above. Now that doesn’t mean they don’t get’em tomorrow.
So the job never goes away. And I make the list every night. And I watch them. And then I watch the market for it to potentially turn. I always have a thought process of what type of market we’re, whether it’s short-, intermediate- or longer-term. But I only act on what’s in front of me.
Now let’s just say the market had a Follow-Through Day this week. Am I buying it? Doubtful. Why? There are no leading stocks. Nothing has had a chance to find a decent low and set up and turn up. And that’s from the study of how markets turn. And very often in bear phases, you get these fake-outs. You have to recognize when they are fake-outs.
So just of note – never stop watching. And it’s out of the real bear markets, that the big money is made. Now let me tell you what happens in regular bear markets. If they last on average around nine months, by month six or seven, the best stocks for the next bull move have already stopped going down. The best stocks have already started to make the staircase up and have started making the cup patterns. And some that maybe didn’t even get hit, make flat bases. And then when the market’s really ready, typically what will happen, right around the time the market decides enough’s enough and we’re heading higher and the uptrend is now in gear – you start getting a few stocks breaking out on 2…3…4…and 5 times average volume into new high ground already.
Those will be your leaders out the bear, until they decide to top. And in a new bull move…another stock shows up…another stock shows up…another stock shows up and another.
So pay attention.
During bear markets also, the media gets negative. Investor’s get negative. They never want to be in again. That’s the time to get most greedy.
You use them and their negativity to understand that always builds up during bear phases.
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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.