This Is Officially a Bear 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.

After a nice three day weekend, I am loaded up today. Pay attention!

The Giants beat the Packers...AND THE REFS! Did you see those calls? The refs have not had a good year. Yes...I am a sore winner. I hate when the refs try to decide the outcome of games. I will never say another bad word about Eli Manning.

I am stunned. No...maybe I shouldn't be stunned...that every politician under the sun is now jumping over the next to hand out money to the American public. What's going on here? Ben Bernanke says that we are not in recession. George Bush says that we are not in recession. Uncle Hank says we are not in recession...but here comes the money! These people are insane. The Democrats are insane...the Republicans are insane. I feel like I am watching One Flew Over the Cuckoo's Nest where all the nutcases were sitting around a table playing poker. I feel like I am watching the Keystone Cops, Laurel and Hardy, Abbott and Costello, the Three Stooges. Is every one of these people that are in power just insane or are they just economically illiterate? How is giving money out to the public just one time going to help the economy? Someone answer this question for me! What economics book says that you can write ONE CHECK...just ONE CHECK to the public...and all of a sudden, they will "feel" like spending again? How is it that this Fed...who created a problem by using excessive liquidity...wants to cure the problem with excessive liquidity? Did any one of you notice what happened every time one of these simpletons opened their yaps this past week? THE MARKET TANKED! So...here is the real and final answer to what is going to happen to all this money. Excuse me if I missed someone else say this...but I haven't. All this money being sent out will go to pay one thing...TAXES! By my estimation, this money will be received about tax time. So...here is the program...the government sends out money...and will get it right back. What a concept! We have finally got to the point that I was afraid we would get to...when markets did not believe anything the heavyweights said.

Did Ben Bernanke actually say it is important for the Fed to be seen as an inflation fighter? Hey Ben...since no one believes a word you say, you may want to consider the following numbers. The 3-month Treasury yield is at 2.85%, the 2-year 2.35%, and the 10-year 3.63%. Fed funds rate is at 4.25%! How much further can you be behind?

I then watched Bernanke's performance this week. To be fair, I applaud him for putting himself on the hotseat. But he instills no confidence. In fact, some of the things he said nauseated me. He does not think the economy is headed into recession. Has this dude looked at the charts of Home Depot, Lowes ,Coach, Men's Warehouse? Has he visited any stores? He also said he thought inflation is in check. Is this dude crazy? Has he bought any popcorn, wheat, gas, health insurance, home insurance, milk, cheese, butter, eggs? Has he paid for any college? This man is not living in the world I am living in. He then went on to say that he knows of no tax cuts that have paid for themselves. HUH? Recent tax cuts paid for themselves many times over as receipts to the government hit all time-highs recently...but Bernanke ignored all this.

The next shoe to drop will be the downgrades of bond insurers. When a bond insurer is downgraded, all the bonds they insure, in theory, are downgraded. There is only about $1.4 trillion of muni-bond securities. Fitch has already downgraded Ambac! I must tell you...this may be the area where a government bailout is most needed.

After Obama complimented Ronald Reagan, Clinton and Edwards made fun of Ronald Reagan. I was going to insert a joke here but this is no joke. These 2 assclowns will do everything they can to undo all of the Reagan greatness if they have their way.

How's that global warming going for you in the midwest? And by the way, for the first time in years, it is so cold in Greenland, the water has frozen over. Not seeing that reported anywhere!

I urge you to take some time out of your busy schedules and go to my website at www.garyk.com and read all my reports going back to last February. These reports will show you that this bear market did not start in the past few weeks but much farther back. For instance:

I outlined way back in February of 07, FINANCIALS and REAL ESTATE topped and while the DOW came down and then ramped to new highs, FINANCIALS and REAL ESTATE could not follow suit. I then called the breakdowns in the FINANCIALS in late July.

I outlined that when the market topped again in July and rallied back up, that RETAIL and SEMICONDUCTORS were now joining the FINANCIALS and REAL ESTATE as areas that refused to rally with the market.

I outlined throughout the whole year that fewer and fewer stocks were carrying the market and that narrowing markets ultimately lead to bear markets.

I outlined on many occasions that at the end of the day, 70% of all stocks were already in a bear market and that the normal outcome was that popular indices would follow.

I outlined that coming into the new year, the market was experiencing its worst technical condition I had seen in a long time...and that January was looking worrisome.

I outlined for you the nifty fifty action in the market reminding me of the 72-73 markets.

So...this nasty bear market did not come out of nowhere...rather was setting up for months. I have been pointing out all the problems for quite a while. Before I talk short term, (which is much less important than the overall market) let's talk about the more important point...and that this is a bear market for stocks...and in spite of so many continuing to come out to call the bottom and to say things are a value and things are cheap, short-term bounces aside, this market is ultimately going lower...maybe much lower. I am down to about 10% of all stocks in good technical shape. I have not seen this number since 2001. In just the past week, the market lost most of the groups that were left standing as FERTILIZERS, AGRICULTURE, OILS and even the UTILITIES were crushed. The definition of a bear market is when the market comes and gets them all. These indicators have always been my #1 and #2 indicators as they tell me the health of the market. Remember how many times in previous months that I told you the market's leadership was becoming more narrow by the week. On top of that, all major indices and all world markets are now trading below their long-term moving averages. To make matters worse, shorter-term moving averages have now crossed below longer-term averages...always a signpost of a bear market. To add some fuel to the fire, margin debt is now contracting and mutual fund cash is very low. This tells you the ammo to move markets may not be there right now. Lastly, the fact that the market is so extended and oversold to the downside...and still can't bounce...tells you just how weak things really are. So overall, you must respect what we are seeing. This is not garden variety and if you just sit there, you are going to feel serious pain. If you have taken action when we reported all the topped out areas, you have missed this move down. I have been in 100% cash for weeks...and only looking for shorting opportunities.

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 beloiw 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.

As far as sectors, just about everything is now in a bear market. About all that is left standing is miscellaneous BIOTECH, GOLD, HMOS and miscellaneous MEDICAL. Everything else is in a bear market but everything else is also extended and oversold and due to bounce.

Gary Kaltbaum