Focus on commodities and the bond market

Gary Kaltbaum is an investment advisor with over 18 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show "Investors Edge" on over 50 radio stations. Gary is also editor and publisher of "Gary Kaltbaum's Trendwatch"...a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary's Daily Market Alerts click here or call 888.484.8220 ext. 1.

Before we get into the internals of the market, we had to point something out to you...because we are dumbfounded. All we are hearing is that the market has come down because of the fear of inflation and higher interest rates. Ladies and gents, pay attention to what is happening and not what others are saying! Since the recent market top, COMMODITIES have had a mini-meltdown and the BOND MARKET is rallying. Markets around the world are not worried about inflation...they are worried about a marked slowdown in growth.

In the past few days, you have heard everything from the MARKET IS ABOUT TO CRASH to DON'T WORRY, EVERYTHING IS FINE...AND THE MARKET WILL RAMP BACK UP. What to do when you get such diverse opinion? You pay attention to the market and not what you are hearing...simple as that.

We continue to believe it is vital that you pay more attention to the forest (longer-term) and not the trees (the short-term). Short term, it does not take a rocket scientist to recognize how stretched and extended this market is to the downside. Short term, it does not take Einstein to figure out how oversold this market is. Short term, it doesn't take Steven Hawking to figure out that fear has picked up in a big way. We actually read several articles claiming that this market is acting like 1987. Whether it is the soaring put/call figures or the rising (VIX | Quote | Chart | News | PowerRating) and (VXN | Quote | Chart | News | PowerRating), every one of our measures is signaling the potential for a bounce. Friday's action may or may not have put in a near-term low for a bunch of areas of the market but we do feel some areas could be sold out. It would also be normal to bounce here as the S&P 500 held its longer term 200-day moving average to the penny. But that's the short term and that's about all there is to the good news.

We do not believe like others that this is just a correction that will resolve itself to the upside. Our first problem is that we are already hearing too many call for a bottom...and we are hearing the nauseating word "capitulation" a few too many times. This is just a few days off of a top. We think these people have not learned a thing as to how bear phases work. More importantly, we believe any bounce should be used for selling and not buying aggressively as odds favor, there is more work ahead for this market.

Before we get into the longer term, let's go over some of things we have been telling you that led to this latest drubbing.

New high/new low figures have been horrid considering the DOW was just near all-time highs. This tells you that underneath the surface, the internals of the market were going south. Speaking of the DOW, it is normally a negative when the DOW leads...and once again, foresaw a downturn.

Mutual fund cash is down to almost 4%...a number which has not been seen since 2000. This gives you an idea why there has been so much rotation as there is not enough firepower to lift all boats.

A/D figures have been lagging while the DOW hit new highs.

We have seen too many under-$5 stocks romping to the upside. This type of frothy speculation never happens at bottoms.

There has been a massive amount of secondary and IPO's coming to market...which tends to suck up liquidity. Once again, this does not occur at bottoms in the market.

All this gave us clues but as we told you, until the major averages broke support, the market got the benefit of the doubt. Once those levels gave way, party over.

Onto the forest:

The NASDAQ and NASDAQ 100 both remain below their 200-day moving averages...not a good thing. These areas were the first to go. The good news is that they will be the first to bounce but overall, the charts are gross and should be sold into any bounce.





Fewer than 5 out of 10 stocks is now in good technical shape...and that's being generous. This is bear market territory. All that needs to confirm is the S&P breaking below its longer term moving averages and especially 1245.



WORLD MARKETS have topped. One of the positives that has kept in gear throughout the bull was that WORLD MARKETS refused to buckle. We believe most have seen their highs for the cycle and in the case of EMERGING MARKETS, we would be doubly careful as many markets are illiquid.

We can go on and on but our last point we want to make is to not wait for the world to call this a bear market to do some selling. Normally, you don't hear cries of bear market until there is a 20% drop. This has been and always will be folly. There has been plenty of damage already and suspect there is more to come.

Our thoughts on GOLD are now coming to fruition as GOLD PRICES are in pullback more. We believe there is more to come...at least to the 50-day MA which would take it to $620. As far as GOLD STOCKS, they have been hit a lot harder than the metal but may have put in a near-term low on Friday as they reversed up from a deep oversold condition.



We feel that most other COMMODITIES will have work to the downside as many tops are in place.. The CRB INDEX looks like it has topped out for now. also.



BONDS remain in a bear market, but near-term, we expect more upside testing. We do not believe the move will carry too far.

Gary Kaltbaum