The Market Remains Smarter Than All

Gary Kaltbaum is an investment adviser 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.

Throughout this bear market, I have taken pains to teach you that it is not the news, it is not what the pundits say or think, it is not what the politicians say or think and it certainly not what the corporate chieftains say or think, it is what the market thinks. Why? The market is smarter than all of them...and very simply, my success in this most brutal of bear markets comes from simply reading the markets. Bear markets leave bread crumbs, leave footprints and have identifying marks. This one has been classic in every way. I continue to find it amazing that even after a 50% drop, many continue to fight the markets. How many bottoms have been called?(BOOYAH) How many calls of cheap and value have been called? Too many. This is an object lesson of my #1 rule. WATCH THE MARKET! It has all the clues you need to tell you where to go.

For future reference, here are some rules to never ever forget.

In bear markets, the groups that lead the market down will go down farther than anyone could imagine. In 2000, it was TECH and INTERNET. In this bear market, it is HOUSING and FINANCIALS. Back in '07, I stated that FINANCIALS were going to be crushed, names like CITI and WAMU were going single digits with a few FINANCIALS going out of business. Recently, there has been many thrilled with the fact insiders were buying into the FINANCIALS. I laughed at this as these insiders were buying all the way down.

In bear markets, the market forces the hand and ignores all opinions. Bear Stearns? The market knew the problems and forced it out of business. Lehman? Forced out by the market that knew. AIG? Forced out by the market that knew. FNM and FRE? Forced out by the market that knew...and on and on. Now the news is about whether CITI and BAC will be nationalized. Many are predicting what will happen. I have news for all of them. As usual, the market is dictating policy. CITI is a goner in one form or another...and BAC is close. Never argue with the market. I can't tell you how badly the value managers have done in the past year because of fighting the market. And on a final note on this rule, this administration had better wake up to the fact that markets matter and are smart. They can fool 3 Republicans into signing off on a laughable stimulus bill but notice how they cannot fool the markets.

Companies that lose money will be the biggest losers. Very simply, in bear markets, the curtain comes down on those stocks that do not have earnings...and it does not matter who they are, what their name is, what they sell...

Wall Street lingo will not change. No matter what the market does, Wall Street will tell you:

"Don't worry! Everything is okay. It is a great company. It will come back"

"If you sell now, you will miss the upside!"

"If you miss the ten best days of the year, you will ruin your returns!"

"Cheap, value, cheap, value, cheap, value!"

"It's the bottom. No...it is the bottom. For real, it is the bottom. The bottom bottom bottom bottom bottom bottom bottom bottom bottom bottom bottom bottom."

"Capitulation...no, it's capitulation. Capitulation capitulation capitulation capitulation capitulation capitulation.

Wall street will continue to parade charlatan after charlatan in front of you. It will not matter how poorly they have done in the past, they will just continue to tell you what to do. Since I am in a good mood today, I will not mention names but one specific banking analyst was paraded out this week to tell you BAC was the financial buy of the century. This same person said the same thing about the stock in the 30s...as well as all the financials at much higher prices. Moral of this story: know who you are listening to.

The final ingredient of a bear market...and especially of a bear market like we are going through now is...and read carefully ...WHEN A BEAR MARKET LIKE WHAT WE ARE SEEING ENDS, NO ONE WILL BE CALLING A BOTTOM. NO ONE WILL BELIEVE IT. NO ONE WILL WANT IN. Maybe, just maybe we are starting to get into that phase where everyone who has not sold, is now starting to give up as the news is so bad, the losses are so large and most importantly, the hope has all but been drained. As a market watcher, I am starting to see and feel the emotion of hopelessness in the stock market.

Shorter term, markets are oversold...but the big picture has not changed. Major indices are now stretched and extended to the downside so we have to believe a bounce could be imminent. But don't get crazy. The overall condition remains a horror show with very little in the way of leadership. Bounces are bounces. It is the major trend that counts...and the major trend both here and abroad remains down. The DOW remains weakest and is in dire need of a few replacements as GM, C, and BAC may need to come out. I will give you a little bit of good news that bears watching. While the DOW is at new lows, there is only about one third of the new lows that there were back in November, the last time the DOW was here. This means fewer stocks are participating in the downside. This in itself is not a big deal until the market finds some accumulation. But it is these positive divergences that have to be followed as they do eventually telegraph a turn...but not yet.

About the only strong group here is GOLD...but that is now getting too noisy as everyone is now yapping about it after a move up. And I need to make note GOLD stocks continue to underperform the metal.

I don't talk about the DOLLAR much but do want to make mention here that I think the DOLLAR is getting close to topping off its recent strong move.

Lastly, unfortunately, expect a ton of yapping out of Washington, a ton of more government interference and nauseating reactions both up and down in the stock market...that used to be free. It's going to be another tough week to play as I expect some government moves on the financial industry starting with CITI...and most likely BAC.

Disclaimer: The opinions expressed herein are those of the writer and may not reflect those of Wunderlich Securities, Inc. or any of its affiliates. 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.