While I believe that we’re in a bear market and that we’re going much lower, the market is trying to keep the averages looking good. Take out just 9 stocks from the S&P, the S&P average would be down well over 5 more percent.
I’m sure that everyone and his brother knows that this has been the worst starting week to a new year in market history. Starting the day before New Years Eve, the market has given up over a thousand DOW points and at one moment, the S&P was down about 180. That’s not penny ante folks.
No less than 4 major banks have now said that instead of buying the dips, it is now time to sell the rallies. Whether they believe that or not, or if they’re asking others to sell so they can buy on the cheap, is up in the air. But it is significant that indeed they’ve changed their tune from what was standard “buy all dips” advice for years.
So, is this the big one? Are we now in slow motion crash mode? Probably, but it isn’t going to be some form of 5000 point one day or one week crash. This is going to play out over many months.
Way back at the end of May we said that without some new form of stimulus program, the market had probably seen the highs. Well so far that’s held true. But worse, we’ve got the Federal Reserve pushing for a total of 4 rate hikes this year, when clearly the economy is not strong enough to handle it.
For instance last Friday all you heard was that we had printed this incredible 292,000 jobs for the non farm payroll report. They were really cheering and waving the pom pom’s over that. But of course it was nonsense. The first issue is that they ‘seasonally adjusted” the number. Because it happens to snow and do other things in December, the criminals feel it’s their right to “smooth things out”. So the seasonal adjustment accounted for 280,000 of the jobs they reported. Then on top of that, the BLS’s “Birth/Death” model added another 15K jobs to the report, jobs that don’t exist.
Take out the seasonal adjustment and the BLS addition and we actually lost 4K jobs in December. Is that the kind of employment report that warrants Federal Reserve hikes? Not on any planet I’m aware of. This is why we’re seeing the market gyrating so badly. The fundamentals of this market really support a DOW at about 8K, not 18K. But Wall Street likes ever rising asset prices so they can continue to write crazy derivatives against them as collateral. It’s warfare.
Look at Tuesday. We were up 190 points on the DOW in the first hour of trading. But because oil was still puking and China fears of slowing were still nagging them, we gave up ALL of that and by 2 pm we were NEGATIVE by 90 points. Then they rushed back in and by 3:20 we were UP 80 points! That sort of wicked volatility is all part of a market trading many levels above its reality.
So, in a big picture, here’s where we are…The top set back in May was at 2130 on the S&P. The August sell off low was at 1867. Since August 26th, we’ve been trading in a choppy channel inside those numbers.
While I absolutely believe that we’re in a bear market and that we’re going much lower, the market is trying to keep the averages looking good. Most folks don’t know that if you take out just 9 stocks from the S&P, the S&P average would be down well over 5 more percent. 65% of the stocks are down 20% or MORE. We’ve got something of a “stealth” bear market on our hands. The average person takes a look at the DOW or the S&P and says “hey this isn’t so bad, the S&P is only down a few percent”. It’s “inside” the indexes where the carnage becomes apparent.
Consider this. At about 3:30 pm on Tuesday, we took a look at the “stocks making new highs, versus new lows.” At the time, the DOW was up about 100 points. Remember that, we were up 100 points. How were the stocks INSIDE the averages doing? Well on the Amex there were “0” new 52 week highs, but 40 new lows. On the NASDAQ there was 9 new 52 week highs and 350 new 52 week LOWS. On the NYSE there were 12 52 week highs, and 568 52 week lows. Does that spell “market up 100” to you??
Back in the fall, we went from being in stock mutual funds in our 401K, to sitting in cash. I am very seriously considering liquidating it, like we did with our other 401K back in 2004 and buying more gold. But my point is that I don’t see a single reason to be in stocks in my 401K. So far that call has been correct. This market is capped.
I’d need to see a clean break above 2130 to even consider moving money out of cash and into mutual funds. That’s a long long way from here.
In the here and now…if the S&P loses 1900, we’ll take a rocket ride lower and test 1867. IF that doesn’t hold, we’re on our way to significantly lower levels. I’m talking low 1600’s. to start. On the upside, I wouldn’t consider anything as a buy and hold right now. You have to be nimble, where you can buy a stock or index and get out of it… either the same day, or the next. Until this market settles down, holding anything has been a disaster lately.
Finally, let me say this. The single biggest market gain I’ve ever had was buying puts, inverse ETF’s and going short during the 2008 meltdown. IF this market loses 1867 on the S&P, I think those very strategies can be employed and small fortunes made. If you don’t know how to short, consider using inverse ETF’s which “go up” when the index they track go down. If you are fluent with options, by all means, buying puts, AND/OR selling calls will fill your pockets if you’re right. Watch those levels folks. 1867 is very important.