Not Looking Good

On June 11th, I wrote a blog piece titled “Unhealthy Reversal”.  That was the beginning of of the sell off we’re experiencing right now.  Over the past couple of weeks, I’ve been stopped out of a lot of positions.  Selloffs are one thing, but a big pullback that makes everyone question the rally is another.  A 2-3% pullback in the indices doesn’t scare anybody.  But, when you see the indices fall 6-7% and look like they may fall further, that’s when real fear comes in.  We’re beginning to see that now.  And, that’s just the fuel we need to ultimately go higher.

When I wrote the unhealthy reversal article, I was already beginning to see some negative divergences building.  Less and less stocks were participating, bigger volume on down days than up days, and many stocks were flashing red flags.  Research In Motion (RIMM) was one that had a lot of red flags before it began going down and now we’re seeing the results.  Even when you really believe things should be going up, the red flags mean you should put your stops in place or watch your positions carefully so you can exit quickly.

Everything that has been working all of the sudden isn’t.  Those include commodities, emerging markets, technology, etc.  That may be profit taking but I’m taking notice and doing the same.  Run for cover and wait in the market is the prescription right now.  Your charts show you that we’re right at the 50-day and 200-day moving average and the bulls are “hoping” we don’t break through.  You & I, the smart money, are trading around.  We’re not taking anything for granted.  Based on such a crappy day today, I would suspect some sort of a bounce in the next couple of days, but the path of least resistance looks to be down for a while.  This is where the opportunity will eventually be.  The economy is improving.  Since May 1st (ish), which is the level where the market resides today, the economy has improved quite a bit.  You now are beginning to see the gap widen where economy keeps improving and the prices of stocks keep declining.  I believe that gap will close over the next few months and prices will rise.  For now though, don’t be a part of the pullback.

The same stocks & ETFs that lead us up since March 9th will lead us up again.  But, that’s where the profits are so that’s where traders are locking in gains.  Freeport McMoran (FCX) is a perfect example.  The stock went from around $15 to a recent high around $60.  A huge move.  But, in a few short days, it’s down to $45.  I think it falls to at least $40 before resuming upwards.

The Fed rate decision on Wednesday probably won’t tell us a whole bunch but that could be the next event that people blame as to why we’re going down.  We’re going down because investors are ready to lock in some gains and wait for the next opportunity.  I’m joining them.

This post published at www.karleggerss.com

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2 Responses to “Not Looking Good”


  1. 1 Michael June 23, 2009 at 4:37 pm

    Karl,

    I listen to your show daily and I have been wanting to ask you what type of back testing software you use? You often talk about what has “worked” in that past and I was just curious what you use to figure that out if anything.

    Thanks and keep up the good work!

    • 2 keggerss June 24, 2009 at 6:31 am

      Hey Michael. I actually use my Bloomberg machine to do that. However, there is retail software that’ll help you do it.


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