The Markets: One Day at a Time

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.

The DOW dropped 17.98 % from yearly highs and 12.21% this year to yesterday's near term lows. The S&P 19.41% and 12.21%. The NASDAQ 23.03% and 16.96%. The NDX 24.39% and 18.76%. The RUSSELL 23.59% and 14.62%. The TRANSPORTS 27.4% and 10.02%.

Wednesday's action was classic action in a bear market. In my last column, I wrote this:

"Shorter-term may be a different story. First off, I am now seeing a lot of converted bulls. The more...the better. When everyone turns bearish, the market gets closer to a turn. Secondly, all the news is being reported as bad. In fact, I keep thinking I am going to walk outside and see nothing but soup kitchens and lines around a bank. This type of news does not come out at a top. But the more important aspect of the market in the short-term is that the DOW is now fully 1000 points below the now declining 50 day moving average. I will guarantee you one thing. The DOW will eventually catch up to the 50 day by either bouncing back into it or the 50 day coming down to meet it. I say a combination of the two will occur. I will even tell you how a near-term bottom possibly plays out. Expect a day where the DOW is down 200-300 points and then reverses sharply on heavy volume. That would be your washout where the late sellers panic and finally get out at the most inopportune time. That washout will then give the market impetus for a bounce. Just keep in mind, any bounce will be a bounce in a bear market...and should be played carefully or sold into as odds favor, there are going to be more legs to the downside before this is over. This washout is not a prediction but I have studied bear markets. Most legs to the downside in bear markets end in that fashion."

After a 1900 point DOW drop in 18 days, the sellers finally dried up. The DOW was down 300 and finished up 300. Now what? The only thing I can do is to live by my strict rules and disciplines and look for a follow through day starting this Monday. This would be a major index up 1.5% on heavier volume. This would change the downtrend into a confirmed rally. This does not mean the ugly is over...but gives the ugly a chance to be over.

I must make note that leading in the past two days has been RETAIL, HOUSING, TRANSPORTS and FINANCIALS. These areas have been the worst bear market areas. I am not so sure the worst areas can lead for a very long time...but will give them every chance. HOUSING looks like it broke a pretty decent downtrend in spite of all the ugly news. Keep in mind, HOUSING is still down 50% in the past year even with this move.

The Fed is now in desperation mode as they lowered rates this week in an unprecedented fashion...three quarters of a point before their next meeting. I expect another half point at the next meeting at the end of the month. I also expect a MAJOR LEAGUE BAILOUT of banks and financials headed by Uncle Hank. Whether or not this pulls the market out of its slump will be decided by the market itself. So far, it is one day up. One day of gains doesn't tell us much. The nine biggest up days in Wall Street history all occurred during the bear market of 2000-02.

There are absolutely no bases to buy off of as the damage has been heavy...and in an utterly amazing occurrence, I am already hearing the call of THE BOTTOM by all the bulls who rode the market down...a call of the bottom after only one day up. There is no shame. I suspect more upside testing but just taking it a day at a time.

Gary Kaltbaum