Nice Bounce, but There's Still Problems in the Markets

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.

After reading massive 5-10 page reports by the mainstream media about Abu Ghraib,about poor results in Iraq,about everything negative and about all the supposed bad things about America, our military and the like, why am I not reading massive reports on the fact that things are now better in Iraq? Why is the media all but silent? And before the hate mail comes in, I am one that wants out of Iraq. My point is that the mainstream media doesn't even pretend to hide their bias any more. Speaking of not even pretending to hide their bias, that was a nice job CNN did vetting the questioners during the recent debate. Funny, they had none of these problems during the DEMS debate. What a laugher!

Hank Paulson, the man who has been calling a bottom in housing since he took his job...the man who said everything was contained...now front and center with a government-led plan to freeze interest rates on subprime home loans. Let me get this straight. An administration that is supposedly free-market oriented...and a believer in a non-interventionist government...wants price controls? Yup...price controls. The hypocrisy is laughable...but more importantly, this idea is insane. Why? This plan will only prolong the real problem...and that is all these homeowners are upside down and under water. Dropping prices is the real problem...not the interest rate or the payment made. This idiotic plan also allows the holders of the mortgage-backed securities to put off the inevitable...which is to mark down the assets to their real value...which is much lower. I believe in free markets...not what these imbeciles are looking for. They should allow the markets to work. This will only stall the inevitable bout of more foreclosures coming our way.

Let me get this straight. GDP just came out at 4.9%...unemployment is at 4.7%...yet Bernanke all but said another half point cut is coming? That's right... just go ahead and fix the problems we are having because of excess liquidity... by adding more excess liquidity. Remember what I told you after the first rate cut...and that is he would cut...cut and continue to cut. Here comes a half point!

The dollar has bottomed...at least for the near-term. I swear! As I said on TV last week, over 90% of traders are bearish on the dollar and seeing front cover headlines of the declining dollar. I also make note that while I want a stronger dollar, I believe it is been used too often to describe "the end of America as a power" much too often lately. Get a chart of the dollar going back many years. It is fine! On another note...I now love my call of lower oil when it was at $99. I am surprised it is back to $89. Nothing bad happens if oil prices come down.

Is Isaiah still coaching the Knicks?

The market is back to a confirmed rally...albeit with lots of warts. Let me pick it apart. Why? Because it has been much more important to talk about what's underneath the hood than what is going on with the DOW. If you owned financials or retail or semis all year long, you have been crushed.

As I told you, I expected a bounce into resistance...which we got on cue. The worst areas bounced the best because of how deeply oversold they were. In fact, many financials had crashed. The fedspeak as well as the almighty Paulson saved the day with their intervention. But it counts. Financials popped strong...but keep in mind, these are bear market bounces. Yes...they can bounce more...but yes, they can also hit a wall immediately. They are in no man's land right now. My guess is that there is more upside testing...but frankly, I am not betting on it. Make note of the few strong names...STT, NTRS come to mind. Semiconductors remain on the morphine drip. I actually believe housing just started another one of their bounces...that will fail. Retail also popped up with the market...but not seeing too much there. I like a DECK and NKE though. I love the fact that Sears finally was klonked. I could never understand how a crummy company's stock kept going up.

Leading stocks held their important supports/moving averages in the past week...giving the impetus for the rally. When you have a chance, take a look at the charts of: GOOG, CME, EDU, BIDU, MTL, MICC, SOHU, SPWR, RIMM, AAPL, MA, MON, ISRG, and CRS. These are the strongest of the strong...which only pulled in. If they continue to hold and act well, it will be meaningful for the market. If they come down and break recent support...good night. I will be looking at these names and the rest on my narrow list for good entry points. When the market is in a confirmed rally, it is time to make hay. The problem is that many of the leader's charts are quite wide and loose here. I believe they need time to tighten up. I will not be happy if they go straight up from here without building new bases...as they will then be prone for trouble.

As you know, I do not try to predict too far out because no one can. I just try to interpret the evidence at hand...which is all I have needed. Now that we received the expected bounce, it will be more important for me to see the underlying internals improve. As I told you, I was not so worried about the near-term because we were getting into end-of-year action and that was combined with a huge oversold and extended condition in the market....and now, December is at hand. December is usually a good month because THE BOYS try to make their year. I am just letting you know again...that if the internals do not improve markedly, January could provide serious problems again as markets have topped many times in January.

Gary Kaltbaum