At one point the Dow was down 800 points from the highs of the day before paring some losses, but one pro says there is more to come on the downside.
Rally Turns To Rout (With More To Come)
By Bill Fleckenstein President Of Fleckenstein Capital
October 29 (King World News) – Wall Street attempted to throw itself a party, as the three major indices were all up about a percent early on, but by midday the Nasdaq was back to flat with the Dow and S&P only about 0.5% higher. The Nasdaq 100 was even heavier, as it turned a 0.75% gain into a 0.75% loss in the same timeframe. Of course, that index is more heavily influenced by the big-cap momentum favorites.
“Never Thirsting, Ever Drinking”
Speaking of which, Apple is going to report on Thursday and I believe it is liable to be a market-moving event. I don’t see how it can avoid reporting disappointing results, or at least results that won’t be enough to see the stock lift, which could in turn cause it to tank. On the other hand, AAPL has been a slippery fish to try and catch on the downside, as it is so beloved…
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I’m not going to reprise my entire case for expecting weakness (as I feel like I’ve done that so many times, and Fred Hickey has done so as well, although far more thoroughly), but in brief, Apple has been running on fumes from the standpoint of new products for four years now, and its market share proves that. Plus, given all the chaos in China, competition, and the law of large numbers, I just don’t see how it can avoid trouble.
If Apple has a problem and its stock price gaps, like we saw many do last week, it could be a real problem for the market overall. However, we won’t know the results for four whole days, and given the volatility recently, that is a long time with a lot of potential for motion. If they somehow manage to skinny on by this quarter, then maybe next quarter they’ll get caught.
Turning back to the action, in the afternoon the market tried to rally a couple of times but couldn’t, so it kept sliding and by day’s end the Nasdaq was 2% lower, while the Dow/S&P lost 1%-ish. I think today’s action was very negative and potentially ominous.
Away from stocks, green paper was a bit stronger, fixed income was flat and unable to rally despite the rout in stocks (which is an extra-negative development), oil lost 2%, and the metals were lower, with silver losing 1.5% to gold’s fractional loss. The miners were a bit of a mixed bag, some stronger, some weaker…
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Taking Stock
For those who missed it, Goldcorp announced plans to repurchase 5% of its shares (presumably if and when it gets the right opportunity). I saw the company criticized online for doing this buyback because some say they don’t have the cash. Of course, the same people have criticized them for not running the company properly. Goldcorp’s CEO, David Garofalo, inherited a mess, but I think he is doing a pretty good job turning things around. Regardless, the current price is just too cheap, even though the company is not swimming in cash and does have a fair amount of debt. I imagine there is probably some contingency plan to obtain extra cash to be able to buy a large number of shares, though it is also possible that they may not end up acquiring much stock at all.
Quite the Fascinator
I should note in closing that IBM made an absolutely ridiculous acquisition over the weekend that shows just how desperate they are. They offered to pay $32 billion in cash for Red Hat, and given the roughly $40 billion they already have in debt, it will be one of the more levered, big-cap pieces of junk that I’ve ever seen (though AT&T has a staggering $250 billion). The fact that IBM is willing to pay that much for Red Hat just shows how bad it thinks its own business really is, despite the bravado. I don’t have a position in IBM right now, but as a proxy for being short credit it might be a pretty good idea, once it is clear to everyone that the stock market is in real trouble.
Included below is one question and answer from the Q&A’s with Bill Fleckenstein.
COT Is Not Bearish
Question: There has apparently been a rapid shift in the COTs. Commercials are now short. Some analysts are saying this heralds a drop in gold ahead, after a month or so out modest gains. Are you anticipating another swoon?
Answer from Fleck: “No I’m not, but that doesn’t mean much. The COT data is not bearish, it’s just not as bullish as it was.”
***To subscribe to Bill Fleckenstein’s fascinating Daily Thoughts CLICK HERE.
Egon von Greyerz discusses his meeting with the Chinese and what they are up to in the gold market as well as what other surprises are in store for the last two months of 2018 CLICK HERE OR ON THE IMAGE BELOW.
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To listen to the man who worked side-by-side with the Chairman of the Comex in the 1970s and called the stock market crash of 1987 CLICK HERE OR ON THE IMAGE BELOW. What he had to say about what is coming for stocks, bonds and gold is priceless.
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